John Carter, well known trader and author of Mastering The Trade, provides a solid list of tips for traders who want to maintain a professional state of mind. Although you can get the details in his book (pages 392-396) what follows will give you a good idea of the wisdom in the details:
1. Trading is simple, but it is not easy.
2. When you get into a trade watch for the signs that you might be wrong.
3. Trading should be boring.
4. Amateur traders turn into professional traders once they stop looking for the "next great indicator."
5. You are trading other traders, not stocks or futures contracts.
6. Be very aware of your own emotions.
7. Watch yourself for too much excitement.
8. Don't overtrade.
9. If you come into trading with the idea of making big money you are doomed.
10. Don't focus on the money.
11. Do not impose your will on the market.
12. The best way to minimize risk is to not trade when it is not time to trade.
Wednesday there was the start of an up correction. Friday price reached the upper side of the downward price channel and the 200 day moving average. This is certainly going to resist the up move. And looking at the hourly chart I would expect a reaction now.
Hard to say if the index is going next for the wave 3 down or still making an extension correction wave (C)-{B} up.
SATS5 turned green. Here we are closing the SATS5 automatic short position and opening a new long position (more information about the new SATS5 HERE). For the manual open short trade I will wait to see if the downtrend line and the 200 average is going be broken.
The red downward pitchfork is broken but still within the wide blue downward channel. The lower side of this channel is a future target level.
I finished testing my new SATS5 expert system for application on daily stock charts, I changed the expert from SATS2 to SATS5. You can now find more information about SATS5 HERE. Green means an open long position. First red or black candle after a green candle closes the long position. A black candle means an open short position. A green or red candle after a black candle closes the short position. Since SATS5 can trade profitably both with long and short trades, we will also trade short automatically.
The SATS5 open short position was closed Friday and a new long position opened. We hold the open manual short position. All trades are shown in the table below.
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As expected last week, the EUR/USD made a further up correction to the level of the 50 day moving average reaching this level on Friday. There is now resistance from this 50 day moving average, the upper side of the Bollinger band, the upper side of the downward pitchfork, a Fibonacci retracement and the trailing stop level. Looks like a lot of resistance. This seems to be confirmed by the overbought conditions on the hourly chart, most probably finishing an ABC up correction. There is some room in the indicators for a further up move.
I expect a downturn to move toward the median line of the pitchfork. This gives us an idea of the future price direction. Together with the 682% Fibonacci target started from the beginning of the down move, we can estimate a price target of $1.16 beginning of October. There is support around 1.25, 1.21 and 1.19.
Probably we finished the correction wave {B} up and started the last correction wave {C} down with probably a new low point to create the big [C] wave down. We now seem to be finishing correction wave 2 up for corection wave {C} down. That move down would bring the Euro to the level of the previous long term correction wave [4] of the long term up move as you can see in the monthly chart, where price finds support on the 200 months' moving average. We should still not exclude for a 100% the possibility that the Euro is making an impulse wave up, now finishing wave 4 and turning up for wave 5. But for now I prefer the [C] wave down scenario.
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We must be cynics when reading the tape. I do not mean that we should be pessimists, because we must have open minds always, without preconceived opinions. An inveterate bull, or bear, cannot hope to trade successfully. The long-pull investor may never be anything but a bull, and, if he hangs on long enough, will probably come out all right. But a trader should be a cynic. Doubt all before you believe anything. Realize that you are playing the coldest, bitterest game in the world.
Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow. It is a game of checkers with the big fellows playing against the public. Many a false move is engineered to catch our kings. The operators have the advantage in that the public is generally wrong.
They are at a disadvantage in that they must put up the capital; they risk fortunes on their judgment of conditions. We, on the other hand, who buy and sell in small lots, must learn to tag along with the insiders while they are accumulating and running up their stocks; but we must get out quickly when they do. We cannot hope to be successful unless we are willing to study and practice—and take losses!
But you will find so much in Part Three of this book about taking losses, about limiting losses and allowing profits to run, that I shall not take up your thought with the matter now.
So, say I, let us be hard-boiled cynics, believing nothing but what the action of the market tells us. If we can determine the supply and demand which exists for stocks, we need not know anything else.
If you had 10,000 shares of some stock to sell, you would adopt tactics, maneuver false moves, throw out information, and act in a manner to indicate that you wanted to buy, rather than sell; would you not? Put yourself in the position of the other fellow. Think what you would do if you were in his position. If you are contemplating a purchase, stop to think whether, if you act contrary to your inclination, you would not be doing the wiser thing, remembering that the public is usually wrong.
Who: Scott Andrews What:FREE Exclusive Webinar When: September 15, 2010 4:30 PM - 6:00 PM EDT Where: Click here to register
To trade the opening gap or not is the single most important decision many short-term and swing traders make on a given day. Further, many traders struggle with profiting from the opening gap - arguably the most lucrative of all intraday setups.
Join "The Gap Guy," Scott Andrews, as he shares his probability-based methodology, helpful research and tips for getting started with the easiest trade of the day. Whether you trade stocks or indices, this webinar will help you avoid the riskiest opening gap setups while maximizing the profits of your winning trades. Scott will also show you how he simplifies execution and avoids many of the pitfalls of discretionary, indicator-based trading.
Just as Treasury traders focused on the bullish fundamental factors in yesterday's session, today was all about the bearish arguments.Unfortunately, the market is having difficulty coming to a reasonable middle ground.A few days ago, we called for consolidation trade in the Treasury markets and I guess in a roundabout way that is what we are seeing.However, this is the most exciting consolidation I have seen in years!The long bond has been quickly moving between 135ish and 132ish.
The markets had picked a direction in overnight trade, but the frenzy was propelled by a better than expected ISM reading.According to the Institute of Supply Management,the August index landed at 56.3 to beat last month's as well as analyst expectations.
Many are arguing the size of today's move on such a minimal economic report but I argue that much of the motivation was a delayed reaction to the Fed minutes released yesterday.As we noted in the last newsletter, the market focused on the Fed's willingness to take further policy action but ignored the fact that they didn't believe it would be necessary or that the most recent QE move was done with some contention.
We are still patiently waiting for the holiday weekend.In theory, market liquidity (and hopefully calmer heads) will return from the three day Labor Day weekend.
We aren't going to pretend we know exactly where the market is going, I doubt that anybody is having too much luck given the market conditions.All we can to is chicken scratch the chart, and give you our best guess....
Obvious support and resistance in the December bond futures will be 135'10 and 131'20, respectively; distant levels will be 136'20 and 127.IF the high 136's are seen, it should be a good place to be a bear.On the flip side, seasonals remain bullish for the next several weeks so it might not be a bad idea to try the long side on a massive sell off into the mid-to-low 128's.
The notes are a better market to be trading futures in.We like the idea of being short-term bulls in the mid-123's and bears in the mid 126's.
Better traders than us might look to play the market in between our noted levels, if so look for a possible swing higher tomorrow ahead of the employment numbers on Friday with the first resistance coming in near 125'09 in the 10 year note and 134'05 in the 30-year bond futures.
Although this month is known as "Black September" because of its propensity to provide negative stock returns, the first trading day of September has now posted gains in 12 of the last 15 occasions.
It is also important to realize that despite media banter about dismal performance in September, the average broad market loss is less than 1%.The bears will tell you that in September of 2009 the markets were coming off a rough August, not unlike what we are seeing play out in 2010.Similarly, investor sentiment was pointing toward doom and gloom and market commentators warned of rocky September seasonals.Yet, the market found a low on September 2nd and rallied nearly 80 handles.Can we get a repeat of last year?We think everything is lining up to pave the way.
The major indices were vastly oversold and due for a relief rally, the question now remains whether or not it can hold gains...or more importantly continue higher.Things look good to us, if you recall in yesterday's newsletter we noted
"It took a while to sink in, but I think the market eventually saw the Fed minutes as market supportive.The committee maintained a relatively stable to optimistic outlook on the economy as well as pledged to take further steps if necessary.In addition, they are dead set on keeping interest rates low...and isn't that what corporate America needs to fund operations and make money?"
Some back and filling is likely necessary and the S&P faces strong resistance near 1080, we doubt the move is over.It is highly likely that this rally caught some large bears standing in front of the bus and they will be looking for opportunities to get out.This means than any pull-back could be met with another round of short covering.Assuming tomorrow's jobless claims and Friday's employment report (referred to as an "unenjoyment report" by our open outcry execution desk) are respectable the September S&P futures contract could be going for just under 1100 and if we get a string of good news...1130 could be on tap.
If you are trading the NASDAQ, 1830 is the pivot but the next resistance will be 1873.Like the others, the Russell faces immediate resistance near 624, but if follow through the next resistance will be about 650.
Candlestick patterns can be effective tools for the trader’s toolbox; however, like any other tool, the user needs to understand exactly what it is designed for and how to use it effectively. Carpenters can make beautiful things with a table saw, but they have to know how to use it and when another tool might be more appropriate for the task at hand. They also need to know the safety rules, how to avoid kickback, and the importance of using a push tool. At least the carpenters that still have all their fingers do.
The analogy holds for trading patterns. There are times when a particular candlestick pattern is effective, and times when another candlestick pattern should be used to do the job. Trading any pattern, candlesticks or some other technique, without a clear understanding of what it is and what to expect in different situations is like using a power tool without an understanding of its use and safety precautions. To protect your fingers and your money, it is a good idea to have a clear understanding of how the tools you are using work.
It is not unusual for trading patterns to have undefined or unclear parameters. Some patterns, such as the hammer, have specifications that may be interpreted differently by different traders. The same is true for Western patterns such as flags and the head and shoulders pattern. The hammer pattern requires, “little or no upper shadow.” The definition of “little” will be interpreted differently by individual traders. This is one reason that several traders using the “same” pattern may see different results. One way to address this is to study the results of many trades using different lengths of upper shadows and then to compare the results. This process results in a clear definition of what constitutes “little upper shadow” and has the added benefit of giving the trader an indication of the type of results the pattern may produce.
Some traders gain a better understanding of trading patterns, and the environments in which to use them, though experience. After trading for a number of years, they begin to understand which variations of a particular trading pattern work best, and which ones are more prone to failure. Experience often produces good results when we are listening closely; however, it can be costly.
Click the play button below to hear the interview or read the transcript below.
Interview transcript:
TraderInterviews.com: Hello, everybody. It's Tim Bourquin. I'm here today with Steve Palmquist and Steve got a new book out that we're going to talk about. He's been around the trading game for quite some time and he's got a website that he talks about some of his trading strategies and things that he's doing. The book is called How to Take Money from the Market. It's also got a subtitle that we'll get from Steve in just a minute, but we're going to talk to him about his overall approach to the markets and how he finds good opportunities. So Steve, thanks very much for joining me on the phone today.
Steve Palmquist: Well, it's good to talk to you.
TraderInterviews.com: All right. Give us that subtitle. We talked about it before we started recording, but it was kind of a long one. So why don't you tell us the full title?
Steve Palmquist: Well, the full title is How to Take Money from the Markets: Creating Profitable Strategies plus Six Ready-to-Use Systems which is quite a mouthful, but then trading takes a little bit of effort.
TraderInterviews.com: Okay. So let's talk about your overall approach to markets and how you've kind of come as your overall strategy and methods for finding good opportunities then we'll talk a little bit about the book as well. So what kind of trader are you? Are you a short-term day trader or swing trader? Kind of talk about that and the markets you trade.
Steve Palmquist: Well, I'm a profitable trader. I don't try to focus on a particular market or a particular holding time. What I do is I look at the market and say it can only really do three things, right? It can be trending up, it can be trending down, or it can be a trading range moving sideways, and I found through testing hundreds of different trading systems that different systems work in each of those market conditions. So the first thing I do is look at the market and if it's trending up, then I open my trading toolbox and I pull out the systems that have shown good results in up-trending markets and if it's moving sideways I open a different tour in the trading toolbox and pull out different systems. But the key is to read the current conditions and use a system that has been tested for that environment.
TraderInterviews.com: How about the specific market or markets that you trade?
Steve Palmquist: I have a database of about 2,500 stocks and what I do is I trade patterns out of those stocks. So I'm looking for a particular price in volume pattern and I don't particularly care what the stock is.
TraderInterviews.com: Okay, and the systems that you talk about, either the six systems or any system, are these automated totally or are they just giving you signals and then you actually decide which signals to take?
Josh Lukeman saves what I believe is his best chapter for last in his book The Market Maker's Edge. In the 23rd chapter, entitled The Trading Mind, Lukeman lists several factors that are crucial in developing the proper awareness of the psychological and emotional influences on your actions as a trader. They are as follows:
1. FEAR: "Fear is perhaps the most debilitating emotion a trader can experience. Painful memories produce fear, which warps a trader's focus. When you are afraid to lose for one reason or another, you will end up focusing on loss and, by so doing, will attract precisely the opposite of what you hope to avoid" (272)
2. LISTEN TO THE MARKET: "Waiting for the market to confirm your initial opinion is crucial. The market provides clear signals for the best course of action, regardless of your opinion. You must let go of any preconceptions about what the market is going to do, and instead remain focused on what the market is doing here and now" (273).
3. ACCEPT RESPONSIBILITY: "When you accept responsibility for everything that happens in your life, you empower yourself to create the trading world you would like. By accepting responsibility for your trades, you empower yourself to consistently improve your performance in the future" (277).
4. GREED: "If you are driven by greed, then you are trading in a state in a state in which you are constantly aware of what you do not have. This is called poverty consciousness, and it will work against your goals of creating abundance in your life" (277).
5. FRUSTRATION: "Your success as a trader at times hinges on your ability to conquer frustration. Frustration will always appear on the path toward greatness. Some will triumph over it, while others succumb to its pettiness. When you encounter obstacles on your trail toward achievement, remind yourself that they were placed there in order for you to overcome them, so you can learn from them and become better than you were before" (278).
The financial press is full of articles about the ‘Hindenburg Omen’ and how it indicates that the market is about to plunge. The Hindenburg Omen is a combination of new 52 week highs and lows, the NYSE’s 10 week moving average, and the McClellan Oscillator. The creator of the Hindenburg Omen compares it to ‘a funnel cloud that precedes a Tornado’ and says it shows there is ‘a high probability that the market is going to crash’. The images of the actual Hindenburg disaster, and a Tornado, are vivid and scary. This plays well in the media, after all their job is to attract viewers for their advertisers, and a lot of financial shows can be; well, boring.
The key issue for any indicator is not the images it brings to mind, but whether or not it has predicted outcomes more often than chance, and hence is a useful trading tool. According to an article on CNBC the Hindenburg Omen has been ‘roughly 25% accurate in predicting big market upheaval since 1987’. That is another way of saying it has been wrong most of the time. Traders need to carefully understand, test, and evaluate every potential tool before considering using it. New indicators come along all the time. Some sound interesting, but the issue is always, ‘how well has it worked, and based on that should I add it to my trading tool box’. The idea of testing and evaluating a tool before using it is a fundamental part of trading. Even a broken clock is right twice a day, being right occasionally proves nothing. Traders need to break through the myths and select tools that have shown some real promise.
There are hundreds of indicators and patterns being used by traders. Many of them provide no more accuracy in predicting market direction than a coin flip. The bigger issue is that many traders do not even know how often the indicators and patterns they use have shown positive results, and how often they have failed. Not knowing this information is like throwing darts in the dark. Effective traders know what percentage of the time their trading techniques work in bullish markets, trading range markets, and bearish markets. Successful traders have multiple tools designed for different
Aug. 27, 2010 (Allthingsforex.com) – The U.S. Non-Farm Payrolls and Employment Situation report will take the center stage in the week ahead as investors anxiously wait to find out if the private sector of the U.S. economy would lose jobs in August for the first time this year.
In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that every currency trader should pay attention to.
1. USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Fed because it measures a variable basket of goods and services, as opposed to the CPI-Consumer Price Index which measures a fixed basket of goods and services, Mon., Aug. 30, 8:30 am, ET.
The core PCE Index is expected to show a slight increase in inflationary pressures by 0.1% in August from 0.0% in July, while personal spending rises by 0.4% from 0.0% in the previous month.
2. CAD- Canada GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Aug. 31, 8:30 am, ET.
Canada’s economy could see faster growth in August by 0.2% m/m from the 0.1% m/m reading in July.
3. USD- U.S. Consumer Confidence Index of consumers’ outlook on present and future economic conditions, Tues., Aug. 31, 10:00 am, ET.
Despite of the high unemployment, the consensus forecasts point to an increase in consumer confidence to 51.3 from 50.4 but, given the current deteriorating economic conditions, unexpected decline in the index would not be a major shocker.
4. AUD- Australia GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Aug. 31, 9:30 pm, ET.
The revised estimate of the Australian GDP should confirm the expectations for faster economic growth in Q2 2010 by up to 0.9% q/q from 0.5% in the first quarter.
5. USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a preliminary estimate for the outcome of the monthly non-farm payrolls, Wed., Sep. 1, 8:15 am, ET.
Last Tuesday there was a gap down and Wednesday the index fell to the support level of the previous wave 5-A and b. Now there is some up correction that is probably going to close this common gap, pushing the index to the resistance of the 50 day average and the upper side of the downward pitchfork. This will probably start the creation of an extension for impulse wave 3 down. I therefore assume that the up reaction will be limited. Reason why I keep also the manual opened short trade.
The red downward pitchfork will give direction to the down move. We can also draw a wide blue downward channel. The lower side of this channel and the median line of the pitchfork are a future target level.
Together with the 161.8% Fibonacci target, we can identify a possible price target around 930, to be reached by the end of September. This target level is also confirmed by the hight of the (A) wave projected down from the top of wave (B) to make up the (C) wave.
Since I finished testing my new SATS5 expert system for application on daily stock charts, I changed the expert here from SATS2 to SATS5. In the next weeks I will publish the new SATS5 expert under the menu item "SATS Expert". For now just look at the colored candles. Green means an open long position. First red or black candle after a green candle closes the long position. A black candle means an open short position. A green or red candle after a black candle closes the short position. Since SATS5 can trade profitably both with long and short trades, we will also start trading short automatically from now on using SATS5 signals.
We hold the open short positions from the SATS5 expert still being black. All trades are shown in the table below.
Price continued the down move beginning of the week, falling below the 50 simple moving average. Now there is a reaction phase with price moving up back to this 50 average. The previous support of this average is now together with the 100 moving average building resistance.
I expect price now to move up a bit further along the 50 average, possibly up to the upper side of the down moving pitchfork, before making a new downturn to move toward the median line of the pitchfork. This gives us an idea of the future price direction. Together with the 682% Fibonacci target started from the beginning of the down move, we can estimate a price target of $1.16 beginning of October. There is support around 1.25, 1.21 and 1.19.
Probably we now finished the correction wave {B} and started the last correction wave {C} with probably a new low point to create the big [C] wave down. That move down would bring the Euro to the level of the previous long term correction wave [4] of the long term up move as you can see in the monthly chart, where price finds support on the 200 months' moving average. We should still not exclude for a 100% the possibility that the Euro is making an impulse wave up, now finishing wave 4 and turning up for wave 5. But for now I prefer the [C] wave down scenario.
Sometimes news that is bad, but not as bad as expected is interpreted and being "good news" and that is exactly what happened with today's GDP report.A few months ago, the markets would have cringed at a growth rate of 1.6% but with expectations for the figure to be 1.4% or much less, it was a breath of fresh air.Also a bit bearish for bonds was a slightly hotter than expected GDP deflator.
As always, Ben Bernanke testimony stole some of the thunder from economic news.However, after all was said and done the market reaction to each event seemed to coincide.The Fed chair pricked the bond bubble by stating that they believe the risks of deflation are not significant at this time and by refraining from announcing further quantitative easing.He also pledged to continue to take action should the economic recovery continue to falter.
The markets took his statements as a sign of stability and acted accordingly.However, one day does not make a trend and Monday could be a little more reliable as an indicator of future market direction.After all, option expiration in Treasuries was today and it is our guess that there were a lot of short call traders that bought future earlier in the week to protect positions were scrambling to sell the same futures in an attempt to avoid the inevitable chop that such a strategy poses.
Reminder from yesterday's newsletter:
The 10-year note has found comfort in the 2.5% range, but we doubt this will hold in the long-term.The only other time yields have been this low (late 2008 on similarly low volume trading), the move quickly proved to be a temporary anomaly.That said, if you recall the last sub-2.5 trade yields reached 2% in dramatic fashion before reversing course.Therefore, what seem to be favorable historical odds...there is a substantial amount of risk involved in speculating the so-called Treasury bubble.
If you missed this trade yesterday:
Clients were advised to purchase October 5-year note 120 calls and sell futures this afternoon for a total risk of under $600 (before considering transaction costs).This gives traders 30 days in the market with unlimited profit potential, capped risk and the ability to quickly adjust or take profits (futures face much tighter spreads than options).
A good exit point in the futures mightbe just under 119 and depending on how things look, it might be worthwhile to hold on to the long call in hopes of a rebound.Stay tuned...
You should be trading December futures by now...We think the near-term highs are in, but let's face it there is no such thing as easy money.As noted in yesterday's newsletter support in the December 10-year note lies at 124'04ish.This marks the up-trend line as well as other technical areas (Fibonacci and MA analysis).Friday's plunge tested the 124'07 area and puts the market at a significant make or break point.There might be some buyers trying to come in at this level, but failure here could lead to a slide to the mid-122's...at which point we would have to be bullish based on seasonal factors.
In the meantime, the 30-year bond futures look to be much more vulnerable.The first "good" support in bonds doesn't come in until we see 131, but 4 handles off the weekly highs leaves the selling a bit overheated and we could see a Monday morning bounce.
It has been a long and hard week for stock market optimists.Bad news after bad news has put unrelenting pressure on equities but today's trade might offer enough momentum to fend off a slide in the S&P to the 1,000 area.
Second quarter GDP was revised lower as expected, but the news wasn't as bad as most had anticipated and more importantly what the markets had priced in.As of now, it is believed that the U.S. economy grew at a rate of 1.4% last quarter as opposed to what many believed would be much worse.Also helping the bulls were comments by the Fed chair ensuring that the Fed would be ready to step in and defend against a weaker economy if necessary.
As we have been noting in this newsletter, the market feels too bearish.Retail investors have pulled their money out of stock funds in droves and there seems to be very little interest in putting it back to work anytime soon.In fact, according to the American Association of Individual Investors, the number if individual investors that have a bullish outlook on the stock market in the next six months has plunged to 21%.This is the lowest reading since March of 2009 and we all know what happened then.I hate to say it, but once all of the weak hands are out, it is often the time to begin looking for a rally.
In yesterday's newsletter, we were calling for a bounce to the 1065 area, and today we got what we were looking for but it will take some follow through buying early next week to confirm a near-term bottom.I hope some of you were able to capitalize on our advice of trying to get long the S&P on a dip to the mid-to-low 1030's; the low prints weren't see and the 1037 print was quick...
Going into Monday, it seems as though we could get a bit of digestion from the rally.Aside from seeing a 25 plus point run in the S&P from Friday's low, historical statistics suggest that the next to last trading day of August tends to see a struggling market.According to the Stock Trader's Almanac the S&P has closed positive only twice in the last 13 years.
We see resistance in the September S&P futures near 1065 and then again just under 1070.In the meantime, support lies at 1050 and 1034.
If you are trading the NASDAQ or the Russell, we have revised our upside targets to 1835 and 624.If the markets take another big dip down, look for support near 1756 and 596.We still lean toward buying weakness.
During all movements of stocks, whether up or down, there are repeated resistance levels. There are a number of different causes for them, and, likewise, their effects are quite different.
It is difficult to find the exact reason why a certain stock should meet resistance at 52 one day and at 56 a week later. However, if we picture the thousands of people—perhaps millions during roaring bull markets—who are interested actively in the market, and add the pool, professional, and banking elements, we have a large number of situations something like this:
Since our Legends of Trading Forum was such a success we have decided we must have another! We will keep you updated on when and where! More info coming...
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