Tuesday, May 29, 2007

Elliott Wave - Can anyone actually trade it?

Simplified Elliott Wwave Analysis

For real traders, real trading, and winning in the markets.

Elliott wave is a unique form of market analysis, developed by R. N. Elliott in the 1930s. Since then, numerous Elliott wave software programs have used his wave analysis techniques. Though promising a lot, many Elliott wave forecasts and approaches have failed to deliver - why ?

MTPredictor has found the answer. MTPredictor uses Elliott wave analysis in a truly unique manner - it identifies Elliott wave patterns in isolation...and only if a valid Elliott count is present. It is software that allows the trader to identify trade set-ups without the need for a complete historical analysis of a market or the added confusion of multiple timeframes. This solves one of the main Elliott problems - analysis often drifting in and out of phase. The traditional way of dealing with this is by using alternate wave counts...we believe this leads to more questions than answers - and never use 'alternatives'.

Elliott wave analysis in the MTPredictor software is applied in isolation - and then only when a valid (and obvious) wave count is present on the chart.

This has the enormous added benefit that the Elliott counts placed on the chart are applied automatically by the software. Most traders find it difficult to place valid Elliott wave analysis and wave counts on a chart with consistency - even then, it takes time. This is where MTPredictor will help you - it will place a valid (and only a valid) wave count on the chart for you automatically with a mouse-click. This makes Elliott wave extremely easy to apply.

Not only that, but MTPredictor has isolated one specific Elliott wave pattern - the simple ABC correction - and applied it to a specific (and automatic) trade selection module in the software. This allows you to not only identify this ABC wave pattern, but also to analyze risk/reward and project profit targets - all from a simple, quick mouse-click.

If you have trouble with Elliott wave...you're frustrated at ever-changing wave counts, confusing and misleading alternate counts, unreliable forecasts or even find it difficult to place wave counts on a chart...take a look at MTPredictor. Steve Griffiths has used 20 years' practical experience to filter out Elliott wave confusion and develop software which places counts automatically on your charts - which don't change mid-trade and aren't optimized. His Isolation Approach™ (click here for more info) is unique and makes actually trading Elliott wave a reality.

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Monday, May 28, 2007

Analysis Paralysis

USA Domestic exchanges, and large International Exchanges or markets, are touted as being the most efficient and investor friendly. And why not? Look at all the data and tools that are made available to investors, both large and small. The vast amount of information available through the Internet, research companies, and the exchanges themselves sometimes provides more data than most investors wish to digest.

This can be a blessing or a curse. On the one hand, more data typically translates into a better-informed investor, enhancing the transparency of a stock and the market. On the other hand, some investors can fall into a data-induced coma that impairs their investment decisions. That’s because with all that data, you can make a bullish or bearish argument just by picking and choosing what information to include in your analysis. We often refer to this as “analysis paralysis.”

Interestingly enough, this orgy of data available for everyone’s inspection does not please all market participants. There’s one growing group of investors who would rather you not see what they’re buying or shorting. As a matter of fact, this group goes to some extent to hide their trading activity for fear that they will tip their hand as to how they invest.

The group I’m talking about is the growing number of hedge funds and other institutional money managers.

These specialty managers run money for the elite on Wall Street. Their job is to make money for their investors regardless of market conditions. And they’ll go to great lengths to get the job done, spending vast amounts of money and time to collect research data, develop proprietary models, hire experienced traders, and yes, hide their trading activity. The rewards far outweigh the costs, though, as the successful managers take home billions in fees.

So what does this have to do with you? Well, note that one thing these elite managers try to do is hide their trading activity to help maintain their trading edge. The problem? This begins to work against the transparency that I described as a benefit of the growing data availability on the market. This is especially true when the crowd of secretive managers grows to a larger portion of the daily volume activity on the exchanges.

A few months ago, I received a phone call from a reporter friend who wanted to talk about the “dark pools” and their effect on the market. For those unfamiliar with these unofficial “markets,” dark pools (also known as “dark books”) are unofficial exchanges that match buyers with sellers. These alternate exchanges offer institutional investors a way to hide their order flow, which provides the anonymity that helps them avoid tipping their hands.

The drawback is that this “stealth activity” is no longer included in the daily trading statistics. Data no longer provides as complete a view of “the market” as it once did. That can potentially affect your analysis and your trading results.

In addition to its effect on data, off-exchange transactions can adversely impact daily trading activity. Remember February 27, when the Dow swung from a loss of 200 points to more than 500 points within minutes? Some have pinned the huge volatility surge on a dramatic increase in volume from institutions that initiated program trades that they weren’t able to complete in the dark pools. While the dark pools offer an alternative to the exchanges, they don’t have the same liquidity. Therefore, when institutions needed to execute large sell orders, they were forced back into the light of the exchange floor.

The effect on you and me? It turned out to be a double negative. First, when these traders are active through the dark pools, we aren’t able to see the activity. Second, when the need to rush to the floor to sell kicks in, we suffer through the extra volatility it creates. Not a good situation.

So what can we do? First, find the other ways that these big fish hide their trading activity. For years, the institutions have used the options market to transact purchases or sales of securities without having the footprint of their volume land in the daily trading reports issued from the exchanges. Closely monitoring the activity provides another view of the accumulation and sale of securities. While our approach most often utilizes option activity as a contrarian indicator to help us avoid running with the “crowd,” it can also alert us when there’s unusual trading activity taking place. See today’s Market Watch for an example. Adding this view to your arsenal gives you a way to monitor some of the “off floor” trading activity.

Let’s get to the Bottom Line. As the assets that are flowing into hedge funds and other alternative investments continue to rise, so too will the methods these investors use to hide their activity. Keeping abreast of these developments by way of the media and some attention to how institutions are trading their assets can pay off heavily, not only as an indication of where the market or a stock is headed, but also where one might expect increased volatility.

Click the Analysis Paralysis title link above to learn more about this very important subject.

Have a great investing and trading week!

Sunday, May 27, 2007

Inflation & The Fed

It's been awhile since the Fed has moved the meter, better known as the Fed Funds rate. Nearly a year has passed since the famous 'pause'. As we know, markets have rocketed higher....with several indices reaching historic highs. The Fed claims to be 'data dependent' and will act according to new information. So far, so good. In fact, futures are pointing to a rate CUT later this year rather than a rate HIKE. So why does the Fed continue to fear inflation?

It's all in the pudding. Inflation has remained low for several years. Sure, oil prices have risen substantially....and this can contribute greatly to price instability. But for the most part, costs have been absorbed without the need for drastic price hikes. In looking at some of the recent data, it appears inflation is scant. The bond market sees no inflation, the stock market would not be rising if inflation were truly a problem.

While inflation at the producer level is somewhat elevated, it's the consumer side that appears contained. PCE data just released showed zero inflation, while last month's CPI was modestly higher. On the jobs front wage gains are not very strong and are not expected to be hot for April. Retail sales figures have been dropping of late and with this weakness comes a slowdown affect on the economy. We've seen the big subtraction from GDP of the housing sector, pulling at least 1% from 2nd quarter growth. Exports should balance this out however, and this adjustment will be seen at the end of May.

So, where is the inflation the Fed is so concerned about? I don't see it being pervasive. Perhaps some areas are inflated but in a truly global economy, competition is answer to inflation. The jawboning from the Fed may just be enough to keep markets moving and inflation at bay.

Reality Check

If you're not satisfied with your trading in the first half of the year (or even if you are satisfied), facing these truths will put you much further along the road to improvement. The trick here is to be honest with yourself. Nobody else has to know your answers, but I do recommend putting your responses down on paper. After all, seeing the reality on paper has a special way creating the necessary change. Ask yourself the following questions:

1) Did I apply a proven trading system to all of my trades?

2) Did I apply a disciplined stop-loss approach to EVERY trade?

3) Did I track my results on a daily, weekly, or monthly basis?

4) Did I review my winners and losers to determine exactly why they were winners or losers?

5) Did I invest in myself or my trading knowledge?

6) Did I find and develop my own ideas, or did I let the media determine what I would focus on?

7) Did I set specific goals that would in turn determine my trading activity?

If you said 'YES' to all of these things, then congratulations - you probably did better than about 98 percent of traders. If you said 'NO' to three or more of these questions, you probably already know that you're not yet reaching your full potential. But don't worry, all things can change. I make this challenge to you.....before the end of the day, write down exactly how you're going to turn your no's into yes's. And I can't stress enough, it has to be done today. If you put it off until tomorrow, it will be too easy to put it off again, and so on. Plus, you'll be training yourself to be a procrastinator. If you do it today, you'll be training yourself to be pro-active, and to take action. Your decision to write down this plan before you finish your day is a powerful indication of just how committed you are to trading success.

Wednesday, May 23, 2007

Perfectionist Trading

Perfectionism may help some people succeed in many other careers, but it can be fatal in trading. Ironically, it leads neither to higher performance nor greater happiness. Perfectionism can destroy your enjoyment of trading. Focusing on flaws and mistakes depletes energy. This may escalate to panic-like states prior to making the trade, impairing objective performance. At some point perfectionistic standards get set too high, and life is measured in units of accomplishment. The drive to be perfect becomes self-defeating, as the individual often places the intense pressure on himself, which can become crippling.

Perfectionists share a belief that perfection is required in order to be accepted by others. The reality is that acceptance cannot be gained through performance or other external factors like money or social approval. Instead, self-acceptance is at the root of happiness. The biggest obstacle to overcome that I have faced is fear of failure. If you have a perfectionist mentality when trading, you are really setting yourself up for failure, because it is a given that you will experience losses along the way in trading. You have to think of trading as a probability game You can't be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small because of the need to be perfect, then the loss will oftentimes grow to a much larger loss, causing further pain for the perfectionist trader.

The objective should be excellence in trading, not perfection. In addition, you should strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. In trading, the great ones make their share of mistakes, but they are able to keep the impact of those mistakes small, while getting the most out of their best ideas. In order to change long established behavior patterns and personality characteristics, it may be necessary to enlist the support and services of a qualified professional. Long established habits, beliefs and traits never change overnight, but acceptance of a problem is a first step.

Set one goal and make it process oriented - forget about the outcome. If you achieve that goal to improve your trading via that goal, you win no matter the outcome. Perfectionists often seek to control uncontrollable factors in a trade (like waiting for all the risk to be out and everything to look perfect, the quality of the fill on the exit especially, hoping or "willing" a better outcome by doubling down on a loser, and many more). When a trader focuses on these uncontrollables, he is more likely to tighten up and not be able to pull the trigger to exit a losing trade or miss out on a new winner that has moved "too far."

Based on these perfectionist tendencies, I recommend the following entry strategy for perfectionists. Enter half a position as soon as you see an opportunity that generates at least 3 times the reward for the risk at the current market price, then place the remaining half at your desired "perfect" entry price. For exits, always place market orders, as the tendency for the perfectionist is to try to get a better exit price with a limit, and then keep missing the exit on the way down.

Here's how this strategy can work as an example: Buy just half of a $10,000 position in a stock as your initial order. If the stock goes down in price, don't buy any more of the stock. If it goes down to your stop price, sell the stock to take your loss. However, if the stock moves up in price from your initial buy point, and it is performing relatively well, you might add another $3,000 to your original $5,000 buy. You would have $8,000 of your $10,000 total position in the stock already committed. If the stock moves up another few percent, you can finish your $10,000 position by buying another $2,000. In this way you average up, not down. You only want to add money if your prior buys are working.

Click the Perfectionist Trading title link above to learn more.

Good day and good trading!

Monday, May 21, 2007

Contrarian Investing

I love contrarian investing and trading, because when I'm right, I'm right big. Reward risk ratios of 5:1 plus. Now that's booking money in the bank.

The market punishes slow pokes and sheep, and that’s why the last thing you should do is invest like the pros. The difference between going with or against the pros is the difference between trailing in their path and picking up the crumbs, or forging your own trail and picking off the ripe fruit that nobody else has gotten to.

If you want to make good money, you need to invest “unprofessionally.”

You see, the pro game is predicated on speed. And there’s no way you can match it. It’s like wishing you could hit as well as Alex Rodriguez does every April. Well, if you had his bat speed, you could. But you don’t, do you? You don’t have the speedy software the pros have to pull the trigger. You’re never going to catch up to their fastball and you’ll only strike out trying.

And human nature does us no favors. It encourages us to participate in a good thing and when it turns ugly, we’re out of there. So we tend to climb on board just before the market peaks and get out well into its fall. Recent studies have shown that both fund managers and fund purchasers are guilty of this kind of terrible timing when it comes to getting in and out of the market. This is the other big reason to invest “unprofessionally.”

If you want to escape this vicious cycle, you could deliberately choose fundamentally sound companies that most investors dismiss because their profitability has either slowed or not kept up with faster-growing companies. But because investors are ignoring these companies, their shares come cheap … sometimes dirt cheap.

This contrarian play is so popular that there’s a word for it – value investing. You’ve probably heard of it. Value investing has a long and respected pedigree stemming from the publication in 1949 of The Intelligent Investor by Benjamin Graham, the father of value investing. Dozens of studies have shown that value investing really works. It’s a great way – but not the only way – to escape from doing what the herd is doing.

There are other ways to mix it up. I like looking at other metrics besides growth or value when choosing stocks. For example, my eyes light up when I see certain metric pairs, such as:

A recent fall in share price of at least 15 percent together with strong analyst recommendations. Shares of these companies usually bounce back strongly.
A PEG (price/earnings to growth) of less than 0.8 and weak analyst recommendations. You can get this combination in weak or cyclical sectors or sectors on the verge of rebounding. Why 0.8? Most investors use 1.0 as their cutoff. I like to tweak conventional thinking. It keeps me that much further away from the crowd.
Strong cash flow growth and low institutional ownership. As far as I’m concerned, cash is king. Cash is real. A company that can grow its cash faster than its competitors gets my attention. The institutional investors catch on to these companies eventually, and when they do the shares go up in a hurry.
Insider buying and weak stock growth. Top-level executives who put up their own money are privy to all kinds of sensitive information that never sees the light of day. If they’re buying, it’s usually for a good reason. Insider buying gives you advanced notice of better days, and weak capital appreciation has kept the share prices low. Nice combination.

Search engines on the major financial web sites allow you to search for companies using these metrics. Remember, it’s the first step – not the last – in evaluating a company. But these pairings can point to companies that have escaped the adulation of the investing crowd. And that, my friend, makes you a contrarian with the chops to find ripe low-hanging fruit on your own.

Click the Contrarian Investing title link above to learn more about this very profitable trading strategy.

Good week and good contrarian investing!

Saturday, May 19, 2007

Weekly Stock Market Outlook

NASDAQ Outlook

Though it was Friday's biggest winner with a 0.75% rally, the NASDAQ Composite was the only index to not hit new multi-year highs that day. The best the OTC could do was 2559.03 before ending the session at 2558.45 (+149.07 points). For the week, the NASDAQ still closed down by 3.77 points, or -0.15%.....the only index to take a loss, which remains a bearish point of contention.

This is an interesting chart....plenty of mixed messages. The thing is - thanks to Friday - we're actually looking at a lot of new bullish patterns. Namely, a cross back above the 10 and 20 day lines. The question is, is that really a big deal? Normally we'd say no, but in the current environment, it may well be enough to prod a few days worth of buying. That dip may have bled enough pressure to safely restart the buying effort again. After all, we've already defied the odds.

Additionally, we have a renewed bullishness on our stochastic chart, by virtue of the %K line crossing back above the %D line.

Bearish clues? Yep. Check out the MACD lines. Heck, for that matter, check out the weekly results....the NASDAQ closed in the red. Given that the NASDAQ typically leads (both up and down), we can't ignore the fact that this chart is weaker than the other three. Why is that? (No answer yet, but we worry about it.)

Just for the record, the NASDAQ has yet to break past a long-term resistance line (red, dashed), keeping this whole rally in question.

NASDAQ Chart

Click For Large Chart

S&P 500 Outlook

The S&P 500's 10.0 point gain on Friday (+0.66%) left it at 1522.75 - also the high for the day (and a new multi-year high at that). That meant a gain of 1.12% for the week, or +16.90 points.

Above we made a few comments about the OTCs bearish signals. We can't really say the same for the SPX - it's bullish all the way around. Stochastics and MACD lines are both showing renewed buy patterns.

What we're blown away by, though, is the 10 and 20 day lines - they're ridiculously consistent support. From this point going forward, they're going to act as our key signal lines. The 10 day average (red) is currently at 1507.95, while the 20 day line (blue) is at 1497.48. You can see how retests of both have led to rebounds since April. Until that stops happening, we're not going to get in the way of the upside train.

Counter-argument? The VIX. On an absolute bases, Friday's dip from 13.51 to 12.76 may seem like a snoozer. But - and as we've been documenting for weeks now - the VIX has been incredible well contained. That's fine, but it ain't permanent. The slow constriction is setting up an explosive break, to one side or the other. And, given that the VIX is on the lower part of its average (historical) trading range, we feel the path of least resistance may be to the upside....which is bearish for stocks.

In the meantime, look real closely where Friday's low was made....at the lower Bollinger band. Now look back at recent encounters at the lower band. See any that followed through to the downside and continued to push the VIX lower? Not one. Rather, we saw support at each instance, and we saw stocks suffer because of it.

Granted, Friday was option expiration, which means there could have been unusual pressures pushing the VIX around. However, we go through an expiration every month, and none of them were an exception to the pattern. We shall see.

In the meantime though, the bulls seem to still be in control.

S&P 500 Chart

Click For Large Chart

Dow Jones Industrial Average Outlook

On Friday, the Dow's high of 13,612 was yet another new all-time high, while the close of 13,557 was 80 points higher than Thursday's close - a 0.59% gain. On a weekly basis, that meant as gain of 231 points, or 1.73%.

Just incredible. New all-time highs, without even a second thought. Good volume behind the buying too. The momentum here is clear, and the bullish MACD and stochastic lines both prove it. (The stochastic lines are bullish in the sense that they seem to have no problem staying in 'overbought' status.)

The vulnerability remains the same....the Dow is now 10.8% above its 200 day moving average line (green). However, that vulnerability is only a possibility for the time being. The reality is, the bulls don't care.

The 10 day moving average line (red) seems to be the key signal line here, as the Dow has found precise support there for weeks. If it and the 20 day line (blue) start to crumble, that may be a big deal - it would be the first time in weeks they started to give way.

Dow Jones Industrial Average Chart

Click For Large Chart

Have a good week!

Friday, May 18, 2007

Burned On Hot Tips

When I watch the market close on any given day, I can’t help but be amazed by how many investors were misled into making a trade.

How were they misled?

Take, for example, MarketWatch.com announcing the market was going up because oil prices dropped. Are you telling me that a full day’s trading can be summed up and explained away with one overarching reason? Pardon my French, but that is complete bull.

If oil prices really affected the stock market like news hubs would have you believe, then why is the Dow Jones sitting at a record high while oil is nearing its own record high? The reason is simple: oil prices are just one of thousands of variables that affect the market at any given time. Just because oil prices happened to go up doesn’t mean the market won’t follow.

Now, granted, I know that this is the way the financial media works, but not many other investors do. Sure, the ones who are in the trenches, yelling for the latest bid and ask orders, are well aware of what’s going on. But those aren’t the investors I’m concerned about.

I’m concerned about you.

I want you to know that just because a headline from the Fed, the government, or a news hub says something is so, doesn’t mean it is. All of these different institutions have good reason to manipulate the truth. Maybe they want to paint a rosy picture of the economy or come up with a compelling headline.

Hell, even Jim Cramer (back in his hedge fund days) admitted to using news outlets to manipulate stocks. Don’t believe me? Check out a New York Post article for yourself by clicking here.

If Cramer, the guru du jour for the mainstream media, admitted to manipulating stock prices, what makes you think every other hedge fund around isn’t doing the same thing? And the biggest problem with all this misinformation is that it changes conventional wisdom.

Now, because of a few stupid headlines, investors actually believe that oil prices are a predictor of overall market direction. Because of a few stupid economic reports, investors believe inflation may actually be tame. Because of a few stupid statements from the Fed, investors actually believe that the Fed knows exactly what they’re doing.

But none of this is true.

I could go on and on about all the outright lies that hit the market every day, and I will in future articles. But for now, I want you to understand that following the latest news flash is the wrong way to profit from the market in the long term (but not the short term, when trading on news can be very lucrative).

The only way to make money in the long run is to truly understand the stock you’ve invested in … understand every fundamental factor that affects it … and understand what will or won’t constitute a fundamental change to that company’s outlook.

It’s not an easy endeavor to undertake, but it’s one that’s time tested and works. After all, how do you think Warren Buffett became the second richest man in America? It wasn’t by paying attention to the news, that’s for sure.

He took his time and digested everything he could about the company he wanted to invest in. He made sure he understood exactly how the company made money and every factor that could affect their profitability.

Now I understand that not everyone can be like Buffett. After all you have a life to live. You go to work, and then come home to spend time with your family, not pouring over a 10K form.

Have a good weekend.

Thursday, May 17, 2007

Way of the Turtle

Way of the Turtle, Way to Go - By Van K. Tharp

I recently wrote a foreword for a book that I think is one of the top five trading books ever written. It’s Curtis Faith’s new book, Way of the Turtle. Curtis was one of the more successful traders in Richard Dennis’ experiment to see if he could train good traders. And since I was part of the selection process, but never knew what happened once they started training, I was fascinated to get these insights.

Taming the Turtle Mind - By Curtis Faith

Excerpted from the Newly Released Way of the Turtle

Human emotion is both the source of opportunity in trading and the greatest challenge. Master it and you will succeed. Ignore it at your peril.

To trade well you need to understand the human mind. Markets are comprised of individuals, all with hopes, fears and foibles. As a trader you are seeking out opportunities that arise from these human emotions. Fortunately, some very smart people—behavioral finance pioneers—have identified the ways that human emotion affects one’s decision-making process. The field of behavioral finance—brought to popular attention in Robert Shiller’s fascinating book, now in its Second Edition, titled Irrational Exuberance and greater details of which were published by Hersh Shefrin in his classic Beyond Greed and Fear—helps traders and investors understand the reasons why markets operate the way they do. Just what does make prices go up and down? (Price movements can turn an otherwise stoic individual into a blubbering pile of misery.)

Behavioral finance is able to explain market phenomena and price action by focusing on the cognitive and psychological factors that affect buying and selling decisions. The approach has shown that people are prone to making systematic errors in circumstances of uncertainty. Under duress, people make poor assessments of risk and event probabilities. What could be more stressful than winning or losing money? Behavioral finance has proved that when it comes to such scenarios, people rarely make completely rational decisions. Successful traders understand this tendency and benefit from it. They know that someone else’s errors in judgment are opportunities, and good traders understand how those errors manifest themselves in market price action: The Turtles knew this.

Emotional Rescue

For many years economic and financial theory was based on the rational actor theory, which stated that individuals act rationally and consider all available information in the decision-making process. Traders have always known that this notion is pure bunk. Winning traders make money by exploiting the consistently irrational behavior patterns of other traders. Academic researchers have uncovered a surprisingly large amount of evidence demonstrating that most individuals do not act rationally. Dozens of categories of irrational behavior and repeated errors in judgment have been documented in academic studies. Traders find it very puzzling that anyone ever thought otherwise. The Turtle Way works and continues to work because it is based on the market movements that result from the systematic and repeated irrationality that is embedded in every person. How many times have you felt these emotions while trading?

• Hope: I sure hope this goes up right after I buy it.

• Fear: I can’t take another loss; I’ll sit this one out.

• Greed: I’m making so much money, I’m going to double my position.

• Despair: This trading system doesn’t work; I keep losing money.

With the Turtle Way, market actions are identified that indicate opportunities arising from these consistent human traits. This chapter examines specific examples of how human emotion and irrational thinking create repetitive market patterns that signal moneymaking opportunities.

People have developed certain ways of looking at the world that served them well in more primitive circumstances; however, when it comes to trading, those perceptions get in the way. Scientists call distortions in the way people perceive reality cognitive biases. Here are some of the cognitive biases that affect trading:

• Loss aversion: The tendency for people to have a strong preference for avoiding losses over acquiring gains

• Sunk costs effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future

• Disposition effect: The tendency for people to lock in gains and ride losses

• Outcome bias: The tendency to judge a decision by its outcome rather than by the quality of the decision at the time it was made

• Recency bias: The tendency to weigh recent data or experience more than earlier data or experience

• Anchoring: The tendency to rely too heavily, or anchor, on readily available information

• Bandwagon effect: The tendency to believe things because many other people believe them

• Belief in the law of small numbers: The tendency to draw unjustified conclusions from too little information.

Although this list is not comprehensive, it includes some of the most powerful misperceptions that affect trading and prices.

In another edition of this newsletter, we'll look at each cognitive bias in greater detail.

Way of the Turtle is available at Amazon, its called Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders. It's only $16.95!

Good day and good trading!

Wednesday, May 16, 2007

Top Trading Book

Qualities of a Top Trading Book - by Van K. Tharp, Ph.D.

When I wrote the foreword for Curtis Faith’s new book, Way of the Turtle, and called it one of the five best trading books I’ve every read, I got a comment back that said I was not being objective. The reader said that everything in the Turtle book was on the Internet (i.e., I think meaning the Turtle’s system) and that it probably was no longer a great system.

I found that comment interesting and stimulating. The author seemed to think that I would rank a trading book based upon the magical abilities of a system contained in a book to make everyone money. Part of her assumption was true, I tend to rate books according to how well they reveal principles that will make people money, but that has nothing to do with whether or not a good system is discussed.

Let me repeat that statement in a different way: The principles that will make people money in the market have almost nothing to do with having a good system. A system is at best, 10% of the success factor. And a good trader could make a living with a so-so system.

Two of my top books were Jack Schwager’s Market Wizards and the New Market Wizards. And Jack’s overall conclusion from those two books was that what made those people successful was that they had each found a system that fit them, that was right for them. And that’s one of my principles as well.

To be a good trader, you first need to know who you are. That’s not an easy task and I usually have my supertraders do six months to a year of psychological work so they can begin to find out about themselves. For example, here is one of the first exercises, which I believe I gave in one of my first tips in this series: Write down a list of 100 beliefs you have about yourself. This is not an easy exercise, but it is very important because everything is filtered through your beliefs.

When you begin to know who you are then you must set objectives for your trading. Again, this is not an easy exercise. My belief (and there is that word again) is that it amounts for about 50% of system development.

Then you must design a trading system that fits your beliefs and objectives. It also must give you enough confidence that you are comfortable trading it. I do an entire workshop on this particular topic.

Then you must develop a position sizing algorithm that will allow you to meet your objectives. There is a very important principle in there that I’ll talk about in a future tip, but it is not your system that meets your objective. Instead, it is through position sizing that you will meet your objective. The factor your system has in this is that the better the system is, the easier it is to meet your objectives using position sizing.

And lastly, although I touched upon it first, is that you must have your personal psychology together so that you can trade the system in such a way as to meet your objectives. If you don’t, then you’ll make lots of mistakes and it doesn’t take too many mistakes to turn a good system into a losing system.

Now when a book begins to reveal the essence of what I’ve just said, and perhaps does it in a new way, then I call it a great book.

And by the way, the Turtles system is still a good system. But it is probably not right for most people because it won’t fit their beliefs and they won’t have enough confidence to trade it.

Click the Top Trading Book title link above to learn more about the traders coach.

Good day and good trading.

Monday, May 14, 2007

Todays Megatrends

No matter where you turn these days, there seems to be a crisis brewing. It would give even the most confident investor pause. And for the rest of you who are a little nervous to begin with, what’s stopping you from grabbing your money and heading for the hills?

It’s a pick-your-crisis investment world. So many things can go wrong. But it doesn’t have to paralyze you. You shouldn’t have to accept bigger risks. But can you really turn your back on all these “bombs” and live to tell about it?

Cutting off Iran’s oil supply if it continues on its current path

Another major terrorist event on our soil. We’ve been lucky so far, but how long can it last?

An antagonistic turn in our relations with China. Aside from human rights and geopolitical competition, the potential for economic conflict is getting bigger. Just last week, China blew up at the U.S. because it had the audacity to ask the WTO to do something about China’s abysmal record on piracy and copyright protection.

The spreading of the subprime contagion. It’s already leaking into the next level of risky mortgages.

The unexpected slowdown of capital spending. With consumer spending teetering, that’s the last thing the economy needs.

The Fed painting itself into a corner. Inflation just isn’t slowing down as much as the Fed expected it would by now. But raising rates in a slowing economy is extremely problematic.

The falling dollar. It’s making our equity markets very unattractive for everybody outside the U.S.

Middle East turmoil. Iraq hangs over us like a dark cloud. It’s a war the U.S. can’t afford … and can’t afford to lose.

But you can dodge all these bullets.

While there are so many things that could break one way or the other, let’s put them aside for the moment and instead think of what we are sure of … what we can’t avoid … no matter what happens. Here are four megatrends you can count on happening:

1. India and China are on their way to becoming major economic forces. We may not be able to foresee every setback along the way, but we know it’s a matter of when, not if.

2. Getting the metals and fossil fuels we increasingly need out of the ground is becoming harder, riskier, and more expensive. For example, technology allows us to drill down and sideways longer than ever before. But it requires a bigger commitment of time and money. And drilling is taking place in increasingly difficult places without the needed infrastructure or political stability always in place.

3. The U.S. will continue to be a major economic power for a very long time. China can crow about its $1 trillion dollar-plus foreign exchange. Europe can crow about exceeding the U.S. in the total value of its listed equities. Big deal. Despite its many problems, America’s financial clout and technological leadership remain unsurpassed.

4. Gold’s permanent value. Paper currencies come and go. Gold outlasts them all. It may have its ups and downs, but gold has, is, and always will be a recognized store of value for everybody everywhere.

These four things are staring us in the face. And maybe that’s the problem. We can get so obsessed about short-term trends and current events that we forget to see the forest for the trees.

Why not let these four megatrends be the bedrock of your long-term investments? There’re not trends that will make you a quick buck. But where there’s uncertainty, they can give your investments direction … not for months, but for years and, yes, even decades ahead.

Good day, good investing and trading!

Saturday, May 12, 2007

Trading Mistakes

One of the easiest mistakes any trader can make is not a 'trading' mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike - you can (and will) forget how. Obviously you'll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.

The reason that most traders don't undergo psychological self-development is a lack of time, and that's understandable. However, a good book or class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I'd like to review some self-development concepts that Ari Kiev explores in his book 'Trading To Win'. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions. It's difficult enough to find trading time at all if it's not your regular job. If you're a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It's not that they're better or smarter than you - they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you place your orders and do your 'homework' the night before when you can focus on it.

3. Choose a method or a small group of methods, and stick to them. Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That's ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You'll frequently hear 'don't fight the tape'. The same idea also applies to a flat market - you can't make stocks do something they're just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend.

5. Take responsibility for your trades - all of them. Examine why the losing trades failed, and why the winners were successful. The reality is that you chose to enter each and every trade. This can be painful, at least initially, since the ego is built to deflect blame yet accept praise. That's a trap. If you find yourself saying "that was a good trade entry but....." then stop yourself immediately. Either everything before 'but' or after 'but' is inaccurate. If you rationalize or justify poor trades, then you'll never learn from them. This may be the most important idea of the five - the ego can prevent real learning. If you can learn to accept some failure without being emotionally devastated, then you'll be a good trader.

The only advice I would add to this list is simply to keep a daily trading journal. This can be a journal of trades, signals, ideas, and emotions about your trading. The more you put in the journal, the more you'll get out of it. It will also help you in applying and tracking these five concepts above.

Click the Trading Mistakes title link above to learn more about keeping your mistakes small and your successes big.

Have a good weekend!

Thursday, May 10, 2007

Van Tharps Favorite Trading Books

My Ten Favorite Trading Books - by Van K. Tharp, Ph.D.

I want to briefly describe my ten favorite trading books. I’m not going to give them in any particular order, because I’m not sure I can rank them that concisely. However, these are my ten favorites and I’ve ranked them alphabetically by author, except that three of the books are my own and I’ve included them at the end. In addition, most of them are classics, so my description of each of them will be brief.

1) Easterling, Ed: Unexpected Returns: Understanding Secular Stock Market Cycles. Fort Bragg, CA: Cypress House, 2005. This is a self published book in which Ed does a masterful job of helping people get a major perspective of why the stock may do what it’s going to do. If you want to understand the big picture, then this book is a must read. Michael Alexander’s book, Stock Market Cycles is also a favorite book, but I only wanted to pick one book of this type, so this is the one I selected.

2) Faith, Curtis: Way of the Turtle. New York: McGraw-Hill, 2007. I don’t want to say a lot more about this book because it was the topic of last weeks tip. However, I was impressed enough by it that I begged to write the foreword and I did.

3) Graham, Benjamin. The Intelligent Investor: The Classic Text on Value Investing. New York: Harper, 1995. Value investing is one of the best ways for the long term investor to beat the market. This is the classic text of value investing and it’s the essence behind much of what Warren Buffet does. So if you have the desire to do this sort of investing, then this book is a must read.

4) LeBeau, Charles and David W. Lucas. The Technical Trader’s Guide to Computer Analysis of the Future’s Market. Homewood, IL: Irwin, 1992. I’ve been associated with Chuck for a long time and he’s a presenter in our systems workshop. And the reason he is a presenter is this book. It probably does the best job of any book up to it’s publication date of taking apart systems into components and showing you how to logically think about and develop systems.

5) Schwager, Jack. Market Wizards. New York: Institute of Finance, 1988. Jack Schwager interviews 16 of the top traders in the world and he also interviewed me. This book, like no other until its sequel, really elucidates what’s important for trading success. I’ve always said that trading success consists of the commonalities of what great traders do and how they think. And if you want to learn that, then this book is the place to start.

6) Schwager, Jack. The New Market Wizards. New York: Harper Collins, 1992. There are a lot more than 16 great traders and Schwager presents some more of them in this classic book. I personally think the William Eckhardt’s interview alone is worth the price of the book.

7) Wilder, Wells. New Concepts in Technical Analysis. Greensboro, NC: Trend Research, 1978. This is the oldest book on my list and I’ve included it because it is the original presentation of some of the classical tools of trading including ADX, ATR, and many other classics. If you are not familiar with these concepts, now is the time to start and this is the book to start with.

8) The Definitive Guide to Position Sizing: How to Evaluate Your System and Use Position Sizing to Meet Your Objectives. Cary, NC: IITM, 2007. I’m a little reluctant to put this book in my list because we haven’t released it yet, but it’s already written and I think it is a new classic. It includes how to measure the quality of your system objectively, no matter what style of trading you have or what instruments you trade. And then it includes everything you could possibly want to know about how to use position sizing, depending upon the quality of your system, to meet your objectives. It’s that simple and I’ve very excited about it. We’ll probably release it in 3-4 months.

9) The Peak Performance Course for Traders and Investor (5 books I’ll count as one). Cary, NC: Van Tharp, 1989. When I developed the Investment Psychology Inventory to measure strengths and weaknesses of traders, people started saying, “I totally agree with your analysis, but how can I use this information to improve my trading.” As a result, I wrote the home study course over a five year period to do just that. The course should be must reading for anyone who is serious about trading or investing. And if there is a number one choice among the ten books, this is it.

10) Trade Your Way to Financial Freedom, 2nd Edition. New York: McGraw-Hill, 2007. I’ve been profiling this book in my tips over the last few months. If you really want to understand systems and how to approach the markets, then this book is also must reading.

Click the Van Tharps Favorite Trading Books title link above to learn more.

Good day and good trading!

Wednesday, May 09, 2007

Risk Reward Ratio

Think you know about risk and reward? Most traders use the target price and the stop price as their model of risk and reward, and leave it at that. However, they may be missing an important risk/reward concept. Read on to add a new weapon to your trading arsenal.

The concept of a risk/reward ratio is pretty straight-forward; for any given trade, you're targeting a certain amount of gain, while setting a stop-loss limit if the trade goes the other direction instead. This is a critical concept for any trader to grasp, as the idea is to establish the potential loss to see if it justifies the potential gain. Of course in all cases, you want your reward to be at least a little better than your risk, so you set your targets and stops accordingly. A good rule of thumb is to seek a return of three times as much as the amount risked, making the reward/risk ratio 3 to 1. But it's equally common to see reward/ratios of anywhere between 2 to 1 and 4 to 1. Let's go through a real example.

Say we're buying XYZ shares at $36.00. We think XYZ will move to $46.80 for a 30% gain, and we're willing to risk a 10% loss in the attempt to get that 30% gain. A 10% loss on $36.00 (initial investment) means shares would fall to $32.40 before we threw in the towel and closed out the position. Our potential reward is 30%, but we're risking a 10% loss. What's the reward to risk ratio? Well, 30% divided by 10% equals a 3 to 1 reward/risk ratio.

So as long as your rewards are bigger than your risks, over time (and enough trades) you'll make money, right? Wrong. Unfortunately, too many traders automatically set up a 3 to 1 ratio when setting price targets and stop losses on any of their trades. But they're forgetting something very important. Just because your profit target is three times as big as your risk doesn't mean you'll ever actually hit that target. You also have to factor in the likelihood of a successful trade. Let's take a look at why.

Let's stick with the assumption that our optimal reward/risk ratio is 3 to 1. Let's also assume you've developed a trading system (or you're able to pick stocks) that produces one winning trade in every four trades. So, your win/loss ratio is 1 in 4 (25%), while your reward/risk ratio is 3 to 1. Do you think you'll make money with that system? Nope - for every trade that gains 30%, you have three more trades that lose 10%. The rewards were three times as big as the risk, but it didn't create any real profit! The best you could hope for is to break even.

So how does one measure the real reward-to-risk ratio? You have to factor in the odds of a winning trade into the potential gains or losses. Again, we'll illustrate it with an example. Say you've found a stock you think will move 20% higher, and you're willing to risk 10% to enter that trade. You're target is 20% above your entry price, and your stop loss is 10% under your entry price. With a reward/risk ratio of 2 to 1, this trade doesn't necessarily seem all that great. But, what if the trading system had a success rate of three winners for every four trades? You'd have a 75% chance of making 20%, while only a 25% chance of losing 10%. With that particular trade, your real reward-to-risk ratio would be about 6 to 1.

The point is, don't fall into the trap of setting targets and stops based on a predetermined risk/reward ratio. Big rewards and small losses are pointless if the system is a net loser. Rather, focus on the actual risks and rewards of a total methodology. This will also force you to determine just how successful your trading system or stock picking really is, which is something you should know anyway.

Click the Risk Reward Ratio title link above to obtain a free 30 day trial of a low risk high reward trading software. Keep your losses small, and let winners run.

Good day and good trading!

Saturday, May 05, 2007

Weekly Stock Market Outlook

NASDAQ Outlook

On Friday, the NASDAQ Composite hit yet another new multi-year high of 2577.96 before coming back to close at 2572.15. that was 0.26% (+6.69 points) above Thursday's close, and 0.58% above (+14.94 points) the previous Friday's close. It was the fifth consecutive winning week for the OTC. Despite its unlikely nature, the market seems to have some persistent momentum.

What can we say that we haven't been saying for at least a couple of weeks now? It's not really supposed to be this way, but the buying is undeniable. Above all else, 'the trend is your friend'....right? We have to side with momentum, as frightening as that may be. Just be prepared for anything - it'll happen eventually.

OK, with the reality check in place, let's take a look at the NASDAQ's chart.

What's bullish? MACD, five weeks of gains, and the growing volume behind the move suggests there may be more of the same in store.

What's bearish? Being stochastically overbought, and an index that's 9% above its 200 day average (green).

The fact is, the best recent shot the NASDAQ Composite had at falling apart was Tuesday's plunge to 2510.57...and that lasted about four hours. By the end of the day -thanks to the support at the 20 day average (blue), the composite closed a little higher for the day, and kept on putting up gains the rest of the week. Though it was small and subtle, that tine one-day dip may have been enough to relieve the pressure, and act as a 'reload' for the uptrend.

The move from March's low to here? That was a 10.3% run....241 points. That's big by most standards, and of course, sets up the possibility of a pullback (yet one more reason to be concerned).

Yet, we now know we can't get overly worried until the 20 day line breaks as support. It's currently at 2522. Unless it breaks, the potential downside move will only remain 'potential'.

By the way, the VXN isn't at problematic levels either. We're guessing it won't be 'too low; until it gets towards the mid-14 area. It's currently at 16.59. .

NASDAQ Chart

Click For Large Chart

S&P 500 Commentary

Friday's close of 1505.60 was 3.2 points higher (+0.21%) above Thursday's close. It was also 11.55 points higher (+0.77%) than the prior week's closing level - the fifth consecutive winning week for large caps, and no apparent end in sight. Should we be nervous? Probably, but until at least half of the market is nervous enough to do something about it, 'should' is irrelevant.

There's really not a lot to add here for the SPX - the themes are the same as the NASDAQ's.

As for the SPX particulars though, the 200 day line (green) is currently at 1385....8.6% under the S&P 500's closing level. That, however, may be irrelevant unless the short-term averages start to buckle - which they haven't yet. Tuesday's pullback didn't even brush the 20 day line. Instead the SPX got about 8 points below the 10 day average (red) before rebounding...for the rest of the week.

From March's low to the current level was a 141 point move, or 10.3% worth of gain.

Though we're strangely well above the 200 day average, we'll also mention we're even over-extended above the 50 day line (purple). We haven't been 4.6% above since late 2005, and that ended in a pretty decent dip. So, either this bull run is an anomaly, or we're overdue for the correction we really didn't quite get in February. As it stands now though, it's an incredibly odd but bullish run.

S&P 500 Chart

Click For Large Chart

Dow Jones Industrial Average Outlook

The Dow was the only index not to make a new 52-week high on Friday, which is a little suspicious considering these blue chips have been leading the rally so far. Their 23 point gain (+0.17%) on Friday was the weakest of all, though on a weekly basis the Dow is still leading the pack - it gained 143 points over last week's close....a 1.09% improvement.

Would you believe this is the biggest (uninterrupted) seven-week rally the Dow has had since 2003 (right after the bear had ended and the bull was beginning)? It's true. From March's low, the DJIA has gained 1338 points, or 11.2%. The one from last fall put up a bigger results (abut 15%), but lasted more than twice as long. That's impressive, but as you might imagine we'd say, is also a bit scary.

The Dow is 5.6% above its 50 day line (purple), and 9.4% ahead of the 200 day average (green). Both of those numbers are also suspicious.

Can the market keep it up at this blistering pace? It seems practically impossible, but it also seemed impossible about three weeks ago. To that end, we're watching the 10 and 20 day lines at 13,104 and 12,942.

Dow Jones Industrial Average Chart

Click For Large Chart

Click the Weekly Stock Market Outlook title link above to learn more about our investing trading products and services.

Have a great week!

Thursday, May 03, 2007

Diversification

As the saying goes, "Don't put all your eggs in one basket."

Diversifying your investments is like boarding up your windows against an approaching hurricane. It gives you some measure of protection, but isn’t going to prevent the roof from falling in.

Diversification is one of the fundamental and unquestioned rules of investing. It’s supposed to protect you from huge losses. But what if it doesn’t? You could be facing potential disaster. Could conventional wisdom be so wrong? And, if it is, what can you do about it?

The idea behind diversification is intuitively compelling. If you spread your investments around, chances are that not all of them will get hit at the same time or with the same degree of severity.

But it’s not a bulletproof vest. You don’t necessarily get off injury-free. And the flip side is that when the markets are going strong, your gains are somewhat curbed. If all your investments are doing equally well, you’re not really diversified. But giving up some upside is well worth the price of not losing your shirt in a free-falling market.

Or so the theory goes. The only problem is, it doesn’t work anymore. Or at least you can’t count on it working.

Just look at the February mini-correction and you’ll see what I mean. When the U.S. market went down, so did markets in Europe, Asia, the sub-continent, and Latin America. So did gold and silver. Oil didn’t escape the slide. Nor did blue chips, tech, and small caps. In other words, practically everything went down.

Then, everything went back up together. The China market, which started the February 27 correction, is hitting new highs. Europe and Asia have recovered, and the U.S. market is roughly back to pre-correction levels. Oil is back up. So are gold and silver, copper, nickel, corn and wheat, and cocoa.

Yes, practically everything is back up.

If everything goes down and up together, what’s the use of diversifying? Good question.

It seems that many of the correlations (corresponding and inverse) we’ve relied on for so long are deserting us. If you’re sensing that the markets are getting more and more unpredictable, that’s probably a big part of the reason why.

Oil used to move in step with the market since a thriving economy stimulates oil demand and allows the market to grow. But oil prices declined as the Dow was reaching new highs over the second half of last year.

And gold is supposed to strengthen as the market goes (or threatens to go) into decline and vice versa. But the long-running bull beginning in 2002 saw gold go up. And neither was gold able to escape the recent correction.

Why the heck are some of our most cherished notions of market behavior crossing us up? Because the market has transmuted in some very fundamental ways. There are four historic shifts that have altered how the market behaves. As a smart investor, you need to know what they are.

1. The global reach of multinationals. Recent studies have shown that multinationals from different countries are becoming more and more correlated. It makes sense, doesn’t it? They’re in the same major markets, and the different mix of minor markets they sell to in the developing world doesn’t have much of an impact on their stock price.

2. The world is drowning in money. Global liquidity knows no national boundaries in either its origins or destinations. It comes from China’s enormous one trillion-dollar reserves, the carry trade (from Japan, Switzerland, and elsewhere), petro-dollar countries, and cheap credit from both east and west.

And it ends up wherever there’s a quick (as opposed to safe) buck to be made. Now, I’m not saying that China invests the same way as Saudi Arabia. But all that money looking for a place to land has caused asset inflation in many markets and submarkets around the world. As these markets rise, investment flows into them at a sometimes furious pace because much of the money is leveraged. And at the first sign of the bubble bursting, the hot money leaves just as quickly.

3. Risk modeling reinforces herd behavior. Technology has made such synchronous investment behavior possible. As a common tool of institutional investors worldwide, computer trading based on risk models directs the flow of a great deal of money.

The problem is, the trend is toward more aggressive (and riskier) models, since they get the better returns … at least in the short term. It’s not so bad that funds are getting into rising markets at the blink of an eye. What worries me is that they’re getting so adept at fleeing markets first and asking questions later.

It’s a worldwide meltdown waiting to happen, feeding on its own out-of-control momentum rather than reason (even besotted reason). That makes me very nervous.

4. U.S. and China rule. In the political and military realms, the U.S. dominates. But as far as investment goes, it’s a bipolar world. Despite its huge economy and robust consumerism, the U.S. has to share the stage with China – with its huge appetite for energy, technology, and raw materials.

These two markets exert so much influence over individual companies as well as major country markets worldwide, it begs the question: Can we avoid a bear market if either of these two economies seriously stumbles?

I don’t believe so. Let’s imagine for a second that the U.S. can’t control inflation at the same time the economy encounters serious headwinds. Where can we invest? How about Australia? Their economy is commodity-driven and they don’t rely that much on the U.S. to buy their exports. But they do feed China a big chunk of raw materials.

Safe bet, yes? Not exactly. China fills the shelves of American stores from Wall-Mart to Lowe’s. If these stores begin milking their existing inventory and stop buying from China, China’s economy would downshift from fifth gear to second virtually overnight. And Australia would have just lost its main customer.

February 27 could have been the “perfect storm,” a scenario in which markets everywhere crash when the economies of both China and the U.S. stall. Fortunately, it turned out to be a false alarm. That day hasn’t arrived for either country … yet. But it did give a hint of what could happen to the markets … and to your portfolio.

Both China and the U.S. suffer from too much liquidity and asset inflation. Both economies could go south. It may not happen. But by the same token, it’s not an outrageous scenario.

So what can you do about all this? Basically, two things.

Go with dividend-paying companies. It’s the only class of companies that can withstand a sudden or serious market downfall and still fork over the cash. Since 1965, the cash payout of the S&P 500 has never fallen significantly. And in the brutal crash of 2001-2, dividends dropped just six per cent (compared to the 50-percent downturn in profits).

Second, go with what you know. Even if what you know is one thing (which, of course, goes in the opposite direction of diversification). The business or sector you choose may not be immune to a bad fall. But you’ll have such a good feel for the business that you should be able to see any downturn a mile away and get out in plenty of time.

In such circumstances, there’s no shame in holding your investments in cash until the nastiness blows over. That’s pretty much how legendary billionaire Warren Buffet invests, and it’s made him more than $52 billion.

It’s better than employing a diversification strategy that’s showing signs of becoming less and less reliable as we move forward.

Click the diversification title link above to learn more about this important investment subject.

Good day and good investing!

Wednesday, May 02, 2007

MTPredictor & NinjaTrader

As an authorized distributor, and user of MTPredictor Trading Software, we are proud to announce partnership with NinjaTrader Trading Platform.

As a user, I can simply say that MTPredictor consistently delivers low risk high reward trading with reward risk ratios that I've seen go off at 3:1 as high as 15:1. As we all know, 3:1 is very good and anything over that is just quantum, as George Soros would say.

Let me ask you a question.

Question: Why do the vast majority of traders fail you think?
Answer: Because they do not control and manage their risk properly. Dr. Van Tharp of the famous Trade Your Way To Financial Success trading book, and another of our fine education partners, has just spoke about the same question in his new book.

MTPredictor controls and manages risk with precision. Its starts with automatically visually identifying low risk high reward trade setups in stocks, forex, and futures. Once identified, then entry, stop-loss and take profit are displayed. MTPredictor comes with built in automatic money management features and position sizing for precise low risk high reward trading.

See below for todays announcement of the new MTPredictor & NinjaTrader partnership.

High Reward Low Risk Trade Setups

NinjaTrader


MTPredictor launches Real-time software on NinjaTrader platform

MTPredictor has released a new version of its flagship Real-time software which accepts all the datafeeds compatible with the NinjaTrader platform

London, U.K. (PRWEB) May 2, 2007 -- MTPredictor™ RT is now offered as a brand new add-on for the industry-leading NinjaTrader™ charting/order entry/system development platform. This means MTPredictor intraday traders can now use any of the multiple datafeeds which power the charts in NinjaTrader and take advantage of the platform’s acclaimed functionality. This broadens MTPredictor’s appeal to retail and professional traders, funds and investors, across all worldwide asset classes.
MTPredictor RT is a unique tool to help real-time traders answer the key questions of what to trade, which trades are worth the risk, how much to risk and how to manage the selected trades.

"It is a privilege to work with the NinjaTrader team and be able to offer MTPredictor customers all the benefits of the NinjaTrader platform and, importantly, a choice of high-quality datafeeds and brokerage connections”, says MTPredictor Sales & Marketing Director Tony Beckwith.

Unrivalled Scanner and Automatic Money Management

Using NinjaTrader’s Market Analyzer window, MTPredictor RT can identify complete trade set-ups the instant they unfold and enables them to be displayed on the trader’s NinjaTrader screen with full set-up, risk/reward and trade management analysis. The latest release also features automatic money management routines, helping traders use the optimum trade size. Evaluating and managing trades becomes highly disciplined as the software’s unique Isolation Approach™ to Elliott wave allows the trader to concentrate on the risk/reward equation for trading success.

Multiple Datafeeds
NinjaTrader charts can be powered by datafeeds from leading firms including eSignal, TradeStation, DTN.iQ, TrackData, Interactive Brokers and others. This usefully expands the choice for MTPredictor traders.

Pricing and Availability

MTPredictor RT is available as an outright purchase on a 30-day money-back trial with full support for US$2,495.00. NinjaTrader is free for charting, analytics, and system development. More MTPredictor information and online ordering is available on the website. Journalists and industry professionals may obtain evaluation copies by contacting Tony Beckwith on Int’l: +44 (0) 20 8977 6191; U.S. (toll free): (800) 856-1582 (option 2); U.K. (freefone): 0800 1075271
About NinjaTrader, LLC

Founded in 2003, NinjaTrader, LLC (www.ninjatrader.com) has quickly emerged as a leading developer of high-performance trading software. The company’s flagship trading platform, NinjaTrader, is a FREE application for advanced charting, market analytics, system development and trade simulation. Discretionary, end-of-day and automated systems traders can trade futures, forex and equities through hundreds of supporting brokerages worldwide.

NinjaTrader, LLC sets the benchmark for trading software and continues to invest in new product development. Based in Denver, CO, NinjaTrader, LLC serves the global trading community with locations in Grand Rapids, MI, Amsterdam, The Netherlands and Bamberg, Germany.

About MTPredictor Ltd.

MTPredictor LTd. (www.mtpredictor.com) develops and offers its real-time and end-of-day trading software range to individual and professional traders, money managers, hedge funds and professional stockbrokers. MTPredictor is headquartered in Bristol, England, U.K. and also established in Ohio, U.S.A..

MTPredictor, Isolation Approach, Techniques Curve & Decision Point are trademarks of MTPredictor Ltd. All other product and service names may be trademarks, registered trademarks or service marks of their respective companies. © 2007.

Click the MTPredictor & NinjaTrader title above to learn more about this excellent trading platform combination.

Good day and good trading!