Wednesday, December 31, 2008
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Tuesday, December 30, 2008
These are 'raw & unedited', but I thought I'd share them with you in case you're 'on the fence' about picking up a copy of this course before the current 'second chance' offer comes down this Thursday, January 1st.
"Hi Bill, I know you will probably hear it a lot, but just to let you know that on my first paper trading tryout with the methods I racked up 46 pips in 3 trades of maybe 10-30 minutes each. One in 15 min candles, and the others in 5 min candles. If my trade account would permit, that would have been $460USD, or in home country dollars, about $867 NZD. One trade before dinner and two since. ciao 4 now. thanks 4 your methods. john k."*
"Your videos are excellent. I had some reservation about the complexity of this method but I can see that it is not that difficult once you master it... I am very glad I purchased your product... Keep up the great work. David K."
"Thus far am very pleased with the method. Every trader has heard the old axiom to 'bu y on a dip and sell on a rally'. The problem for me with that saying has always been that I had difficulty telling the difference between a pullback and a price reversal. I am particularly impressed with the rules of this method that help distinguish that difference. So far I have had four wi nning trades and no losses on my demo account and am up about 3% after 3 days of trading. I look forward to seeing how the method works this coming week. Thanks for a terrific course! Steve J."
To join Bill's students, click here to see if any copies of his course are available:
Good day, good trading, and Happy New Year!
*No representation is being made that these results can or will be obtained in the future, or that losses were not incurred subsequent to the date on which the testimonial was provided. There is a substantial risk of loss associated with trading futures, forex, stocks, and options. Only risk capital should be used.
Monday, December 29, 2008
"Forex Income Engine" Last Chance - Ends Midnight New Years Eve
Now if you still like stock trading review this this weeks stock pick of mine. First I hope you had a good Christmas after the worst year economically that all of us have ever experienced in our lifetimes. I wish I could share some good news for the equity sector with you, but my chart work is not showing anything good just yet. I’m mostly short, and have been for the last three weeks with decent returns. I am seeing some upside in selected stocks but not that many compared to the short sells. I would be leaning toward the small caps for any upside surprises possibly. I was thinking the Santa Claus rally might materialize but it didn’t that much if at all.
Scanning the stock charts for some low-risk high-reward trade setups this early Monday morning, I’ve zeroed in on a short-sell candidate in the biotechnology sector. I’ve been thinking for quite some time now that healthcare stocks are going to start losing their rich profit margins they’ve been enjoying for quite some time now and with the change of leadership in the White House, and now with this current economic environment, 2009 could be the time the medical stocks start selling off even more than what they have already. In fact I would forecast and predict this year that the healthcare stocks might be the next financial disaster to hit the stock market and economy.
Short-Sell Gilead Sciences. Ticker GILD
Sell Entry: 49.73 to 51.04
Take Profit Areas
46.81 to 45.35
41.68 to 41.18
35.53 to 33.40
Some of My Reasons for Selling Gilead Short
Number one its showing a major ABC sell setup with a nice tight stop-loss making this stock a very low-risk very high-reward short-sell trade if the market proves me right. Two, way too much optimism. I’m reading current articles from other analysts giving Gilead buy recommendations for a variety of reasons. I see no other short recommendations on GILD right now. Jim Cramer on his “Mad Money” TV Show on December 22nd said “I'm recommending Gilead Sciences and will continue to pull the trigger on that one." Cramer has been wrong so many times this year, it might be continued “Easy Mad Money” to take the other side of the trade on his stock picks right now. Three, the market is still heading south in my opinion. Four, the medical sector rich profit margins are going to get squeezed in this economic environment.
Gilead Sciences Company Profile
Gilead Sciences, Inc. (Gilead) is a biopharmaceutical company that discovers, develops and commercializes therapeutics in areas of unmet medical need. The Company has United States and international commercial sales operations, with marketing subsidiaries in Australia, Austria, Canada, France, Germany, Greece, Ireland, Italy, New Zealand, Portugal, Spain, Switzerland, Turkey, the United Kingdom and the United States. Its commercial teams promote Truvada, Viread, Emtriva, Hepsera, AmBisome, Letairis and Flolan through direct field contact with physicians, hospitals, clinics and other healthcare providers. Its corporate partner, Astellas Pharma, Inc. (Astellas), promotes, sells and distributes AmBisome in the United States. In September 2007, it acquired Nycomed Limited, a wholly owned Irish subsidiary of Germany-based pharmaceutical company, Nycomed GmbH.
Click here to review and Trial the Trading Software I used in determining my by short position on GILD. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Gilead Sciences Stock Chart for a larger view.
Friday, December 19, 2008
Rich Dad Robert Kiyosaki Financial Intelligence Holiday Package Sale
Thursday, December 18, 2008
The Right Circumstances and Trading Success
Van Tharp 2009 Trading Workshops
In my last update, I discussed Malcolm Gladwell’s new book Outliers. In that book Malcolm discusses what might be involved in being a hugely successful person. Malcolm asks different questions in his quest for success than I do as a modeler. As a modeler, I look for what successful people do in common. Gladwell, in contrast, looks for what is common about their background. Since our questions are different, we tend to come to different conclusions.
Gladwell generally concludes that successful people are influenced by the following factors:
1) The amount of practice they give to their craft. In particular, those who achieve 10,000 hours of practice (especially if it is the right kind of practice) are the ones with outstanding success.
2) When they were born. For example, children who were born so as to have the most maturity before a particular cutoff date have a huge advantage. The oldest children are typically the most mature and thus excel and get more opportunities and training. For example, almost all NHL hockey players are born in the first three months of the year. When the tryouts occur they are the most mature so they have a huge advantage. And those who are the most mature, get into the accelerated programs.
3) What kind of values their family had. For instance, middle and upper class children get training from their families about success that poor children just do not have.
4) Being born at the right age and time to take advantage of some particular change in society.
5) Their cultural legacy, which might include hard work (e.g., the rice farmer legacy), or the need to defend yourself from any insult (e.g., the legacy of honor). However, the latter is seldom an edge for success.
One of these, in my opinion, has no relationship to trading success and that is one’s birth date. There is no advantage, in my opinion, to being born on any particular month for trading success. I cannot imagine any circumstance in which that currently applies to trading.
However, there are definitely big changes in society that occur and being at the right place at the right time to take advantage of that can be a huge advantage. I can think of one trader in particular for whom that was true. When I interviewed him as part of my modeling work, I promised him that I would not mention his name, so we’ll just call him the Mechanical Trader.
The Mechanical Trader, in my opinion, has several huge edges that amount to being at the right place at the right time with the right skills and knowledge. Isn’t that what Gladwell talks about extensively in his book?
First, the Mechanical Trader went to one of the top engineering schools in the world—one that does financial modeling. As part of his early training, he became a programming expert way before most people even knew about computers in the mid-1960s. He spent six months testing trend-following systems on a big main-frame computer with punch cards. When I was at his house in 1990, all of his trading programs on his personal computer were written in assembly language.
Second, the Mechanical Trader was exposed to some of the early geniuses of trend following, especially Richard Donchian. Thus, he was one of the first, if not the first, computerized trend follower. That was a huge edge, in my opinion. I’m not sure what his system was, but it was probably as simple as a moving average crossover, such as those advocated by Donchian. You might have trouble using one of those today, but they were much easier when few people used them.
Third, the Mechanical Trader thoroughly understood the power of position sizing. More importantly, he had developed an algorithm to use position sizing to go for goals that most people would consider impossible. In addition, he began by trading commodities before the field was dominated by huge CTAs.
So let’s look at the combination of edges that he had. First, he was one of the very first computerized trend followers. This alone was a huge advantage at a time when no one else had it. Second, he traded in a highly leveraged market that was full of trends and he understood how to use position sizing to make huge amounts of money. He was probably the only person around who had that combination of edges.
Lastly, he understood that the golden rule of trading was to cut your losses short and let your profits run through a trend-following model. And most importantly, he understood that if he had trouble doing that, he needed to work on the source of the problem—his self.
Imagine the edge of being the first computerized trend follower in a highly leveraged area, knowing both the power of using position sizing to achieve huge returns and understanding the importance of working on yourself to be sure that you do not make mistakes.
I think there are probably others who have had huge edges in trading by being at the right place at the right time, but none stand out to me as much as the Mechanical Trader.
Presently, we have the ability to give people a huge edge in trading and that edge could take a number of forms. Here are some of the edges that you could be able to take advantage of right now.
First, I tend to doubt that there are any particular computer advantages these days. But I think very few people realize that it is possible to easily develop a Holy Grail system that fits any one kind of market. The real secret is to understand that it is only a Holy Grail System for that one kind of market and when you try to make it fit all types of markets, you will have major problems. I don’t know how long this will be a major edge, but it is certainly is an edge now.
Second, many people are starting to understand the importance of position sizing, but few people understand that the purpose of position sizing is to meet your objectives. And I think that very few people understand that it is only through position sizing that you meet your objectives. The purpose of a good system is just to make it easier to meet your objectives.
Lastly, many people still have not understood that all of this is impossible if you don’t know yourself. For example, how can you have objectives if you don’t understand who you are? And even more importantly, how can you reach your objectives if you don’t have enough control over yourself to keep from making mistakes? So gaining self-control is also a huge edge.
Click here for Dr. Van Tharps Peak Performance Trading Home Study Programs
Wednesday, December 17, 2008
US Dollar Index
The March Dollar was lower overnight as it extends this month's decline and is trading below the 50% retracement level of the July-November rally crossing at 80.98. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. If March extends this month's decline, the 62% retracement level of the July-November rally crossing at 78.89 is the next downside target. Closes above the 20-day moving average crossing at 86.15 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at 84.93. Second resistance is broken support marked by the reaction low crossing at 85.34. First support is the overnight low crossing at 80.36. Second support is the 62% retracement level crossing at 78.89.
The March Euro was higher overnight as it extends this month's rally and is trading above the 50% retracement level of the July-October decline crossing at 140.32. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If March extends the rally, the 62% retracement level crossing at 144.301 is the next upside target. Closes below the 20-day moving average crossing at 129.902 would temper the near-term friendly outlook in the market. First resistance is the overnight high crossing at 141.950. Second resistance is the 62% retracement level crossing at 144.301. First support is the 10-day moving average crossing at 132.510. Second support is the 20-day moving average crossing at 129.902.
The March British Pound was slightly lower overnight as it consolidates some of Tuesday's rally. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. Closes above the reaction high crossing at 1.5544 are needed to confirm that a short-term low has been posted. If March renews this fall's decline, monthly support crossing at 1.4004 is the next downside target. First resistance is the overnight high crossing at 1.5700. Second resistance is the reaction high crossing at 1.6066. First support is the 20-day moving average crossing at 1.5031. Second support is the 10-day moving average crossing at 1.4982.
The March Swiss Franc was higher overnight as it extends Monday's rally. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near-term. If March extends the overnight rally, the 50% retracement level of the March-November decline crossing at .9136 is the next upside target. Closes below the 20-day moving average crossing at .8428 would temper the near-term friendly outlook in the market. First resistance is the overnight high crossing at .9053. Second resistance is the 50% retracement level crossing at .9136. First support is the 10-day moving average crossing at .8523. Second support is the 20-day moving average crossing at .8428.
The March Canadian Dollar was higher overnight as it extends last week's rally above the 20-day moving average. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. Closes above the reaction high crossing at 82.54 are needed to confirm that a short-term low has been posted. Closes below the 10-day moving average crossing at 80.24 would temper the near-term friendly outlook in the market. First resistance is the overnight high crossing at 83.67. Second resistance is November's high crossing at 87.05. First support is the 10-day moving average crossing at 80.23. Second support is this month's low crossing at 76.93.
The March Japanese Yen was higher overnight as it extends this fall's rally. Stochastics and the RSI are overbought, diverging but are turning neutral to bullish hinting that additional gains near-term are possible. If March extends the rally off November's low, .11500 is the next upside target. Closes below the 20-day moving average crossing at .10782 are needed to confirm that a short-term top has been posted. First resistance is last Friday's high crossing at .11373. Second resistance is .11500. First support is the 10-day moving average crossing at .10967. Second support is the 20-day moving average crossing at .10782.
Successful Forex Trading On Your Schedule
Tuesday, December 16, 2008
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If you see a "sold out" message when you get to that page, please put your name on the waiting list. If the developer decides to ever offer this course again, you may be among the first to be contacted. However, I can't say when that may happen.
Good day and good forex trading!
Monday, December 15, 2008
My low-risk high-reward trade setup stock scans this morning popped up one of the world’s biggest steel producers as a short sale. I would like to buy into this steel producer but not at this price. I’m looking for the price of this steel producer taking another possible discount of 25% to 40% from its current price before the selling pressure stops. See below for more analysis on this short sale stock pick.
Click here for the "Forex Income Engine" Home Study Program.
Short Sell POSCO. Ticker PKX
Sell Entry: 65.65 to 74.04
Take Profit Areas
POSCO News and Analysis
Posco is saying they are going to invest $4.4 billion in 2009 to expand capacity and rebuild their steel furnaces. They are betting against the rest of the steel makers currently who are lowering their production capacity. Posco is trying to get more market share when the steel market turns around in the future. Posco is one of the only steel producers currently to maintain is production volumes despite the global slowdown. Some other Asia steel producers are doing the same as Posco. In the long term, they should succeed with this plan I believe. In the short term, I think it will be a negative for the share price, but actually making it a great buying opportunity of these shares a little later on. In the meantime I’m sticking to my short-sell position here on Posco.
I stick to my views that Asia is still the place to be invested short, intermediate and especially long term, and that Asia really does have the ability to suck up any excess supply with their 2009 forecasted 4% to 5% GDP growth and the associated demand that comes from that kind of growth. Although, be careful, Asia could head into a depression with the Western world, which that recipe is already in place right now if the USA and European governments and central banks don’t fix the credit crisis, liquidity problem, and resulting financial panic right now. I’m at least expecting a prolonged recession for the west. As far as a depression for the west and or the rest of the world, I hope not, but I’m not counting it out just yet. What is done now by the powers that be to fix this mess will depend on whether it’s a recession only or a depression.
POSCO Company Profile
POSCO is an integrated steel producer in Korea. The Company produced approximately 32.8 million tons of crude steel, during the year ended December 31, 2007 (including 2.5 million tons of stainless steel), a substantial portion, of which was produced at Pohang Works and Gwangyang Works. Pohang Works has 15 million tons of annual crude steel and stainless steel production capacity, and Gwangyang Works has an annual crude steel production capacity of 18 million tons. POSCO manufactures and sells a diversified line of steel products, including hot rolled and cold rolled products, plates, wire rods, silicon steel sheets and stainless steel products, and it is able to meet a range of customer needs from manufacturing industries that consume steel, including automotive, shipbuilding, home appliance, engineering and machinery industries.
Click here to review and Trial the Trading Software I used in determining my by short position on PKX. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Posco Stock Chart for a larger view.
Friday, December 12, 2008
The March Dollar was lower overnight as it extends this week's decline. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. If March extends this week's decline, the 38% retracement level of the July-November rally crossing at 83.06 is the next downside target. Closes above the 20-day moving average crossing at 87.11 are needed to confirm that a short-term low has been posted. First resistance is broken support marked by the reaction low crossing at 85.34. Second resistance is the 10-day moving average crossing at 86.73. First support is Thursday's low crossing at 83.99. Second support is the 38% retracement level crossing at 83.06.
The March Euro was steady to slightly higher overnight as it extends this week's rally. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. Thursday's close above the reaction high crossing at 132.350 confirms that a bottom has been posted. If March extends this week's rally, the reaction high crossing at 137.720 is the next upside target. Closes below the 20-day moving average crossing at 127.938 would temper the near-term friendly outlook in the market. First resistance is the overnight high crossing at 133.720. Second resistance is the reaction high crossing at 137.720. First support is the 10-day moving average crossing at 128.813. Second support is the 20-day moving average crossing at 127.938.
The March British Pound was lower overnight as it consolidates some of Thursday's rally. Stochastics and the RSI are turning bullish hinting that a short-term low might be in or is near. Closes above the reaction high crossing at 1.5544 are needed to confirm that a short-term low has been posted. If March renews this fall's decline, monthly support crossing at 1.4004 is the next downside target. First resistance is the overnight high crossing at 1.5100. Second resistance is the reaction high crossing at 1.5544. First support is last Thursday's low crossing at 1.4500. Second support is monthly support crossing at 1.4004.
The March Swiss Franc was higher overnight as it extends Wednesday's rally above moving average resistance. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term. Closes above the reaction high crossing at .8495 are needed to confirm that a bottom has been posted. If March renews this fall's decline, monthly support crossing at .8071 is the next downside target. First resistance is the overnight high crossing at .8541. Second resistance is the reaction high crossing at .8944. First support is the 10-day moving average crossing at .8364. Second support is last Friday's low crossing at .8201.
The March Canadian Dollar was lower overnight due to profit taking as it consolidates some of Thursday's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near-term. Closes above the reaction high crossing at 82.54 are needed to confirm that a short-term low has been posted. Closes below the 10-day moving average crossing at 79.67 would temper the near-term friendly outlook in the market. First resistance is Thursday's high crossing at 82.28. Second resistance is the reaction high crossing at 82.54. First support is the 10-day moving average crossing at 79.67. Second support is November's low crossing at 77.00.
The March Japanese Yen was higher overnight as it extends the rally and has broken out above October's high crossing at .11055. Stochastics and the RSI are overbought, diverging but are neutral to bullish signaling that sideways to higher prices are possible near-term. If March extends the rally off November's low,.11500 is the next upside target. Closes below the 20-day moving average crossing at .10667 are needed to confirm that a short-term top has been posted. First resistance is the overnight high crossing at .11373. Second resistance is .11500. First support is the 10-day moving average crossing at .10850. Second support is the 20-day moving average crossing at .10667.
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Thursday, December 11, 2008
Fed Expected To Cut Rates Near Zero Next Week, Will The Dollar Falter?
The Federal Reserve Open Market Committee (FOMC) is scheduled to announce its final monetary policy decision for the year and almost certainly this cycle next Tuesday. According to the markets, the future is clear. Fed Funds futures are pricing in a 94 percent probability that Chairman Ben Bernanke and his fellow rate setters will cut the benchmark lending rate another 75 basis points to a mere 0.25 percent.
The Economy And The Credit Market
The Federal Reserve Open Market Committee (FOMC) is scheduled to announce its final monetary policy decision for the year and almost certainly this cycle next Tuesday. According to the markets, the future is clear. Fed Funds futures are pricing in a 94 percent probability that Chairman Ben Bernanke and his fellow rate setters will cut the benchmark lending rate another 75 basis points to a mere 0.25 percent. This would be the lowest level for the overnight lending rate in more than 35 years and would force the policy authority to find an alternative means to encourage lending and revive economic growth. And, an alternative they will certainly have to find. With the central bank guaranteeing loans and providing near unlimited liquidity to the market, financial institutions are hesitant to take counterparty risk and lend to each other. What’s more, the worst of the global recession is still ahead; and frozen credit will not offset job losses and income deflation for consumers.
The Financial And Capital Markets
Capital markets have seen modest improvements over the past week; but price action for the past few months reveals the true health of trader and investor confidence. Congestion has held equities, commodities, commercial bonds and other risk-related assets since the panic selling through October was finally curbed by the cumulative efforts of the central bank and Congress. However, with the Fed soon to hit the bottom of the barrel on monetary policy and lawmakers running out of money for all the industries that are asking for alms, it seems further pain is inevitable. Like authorities were forced to do with Leman Brothers in the financial sector, they will eventually have to let major firms in other industries go bankrupt or run the risk of capsizing the entire economy. Investors know that the recession is global and cannot be fixed on a national level; so seeking return when risk is so abundant is out of the question.
Click here to quickly and flexibly achieve freedom trading the currency markets with the Forex Income Engine Home Study Course.
Wednesday, December 10, 2008
You may say, after last week's devastating U.S. jobs report the dollar has already lost big – and it's only the beginning. From the standpoint of the conventional economic wisdom, that's true. Of course, it's the same "wisdom" that was calling for the dollar's complete collapse back in July of this year, when the EURUSD was at $1.60. Since then, the U.S. economic picture has only gotten weaker – while the U.S. dollar has only gotten stronger, pushing the EURUSD as low as $1.24 in late October.
Now you understand why us Elliotticians don't put too much faith in the presumed effects of the economy on the markets, and vice versa. For Elliotticians, market forecasting is all about reading chart patterns.
Wave analysis describes thirteen patterns that all market action falls into. The most basic of those are an impulse and a correction. An impulse consists of five non-overlapping waves labeled 1-2-3-4-5. Impulses unfold in the direction of a larger trend. An Elliott wave correction consists of three overlapping waves, labeled A-B-C; corrections move against the larger trend.
Now, going back to this month's rally in the EURUSD, take a look at its internal structure in the chart below. (You can see this chart fully labeled with Elliott wave symbols online now, inside the December 9 Currency Specialty Service daily forecast for the EURUSD:)
Click here to review the Low-Risk High-Reward "Forex Income Engine" Trading System
Remember, Elliott wave impulses do not overlap, while corrections do. Would you say that the latest EURUSD rally (between the second set of trendlines) looks impulsive or corrective?
The corrective internal structure of this rally is just one of the reasons why Jim Martens posted this note for his subscribers inside Tuesday's (Dec. 9) Currency Specialty Service intraday updates:
"At this moment it's all about risk management. We believe a turn is underway, and that risk is defined and limited relative to reward."
The EURUSD may indeed be offering a good opportunity right now – and, in Jim's words, "risk/reward is on our side." Find our more now with Currency Specialty Service.
Tuesday, December 09, 2008
Theres a brand new Forex method that 'flip flops' the approach most people take, and shows you how select groups of traders can get in on the huge volatility in the Forex markets right now that's being created by the problems in the other global markets.
New Free Forex Training Videos
In the past week, nearly 77,000 traders got exclusive access to 30+ trader Bill Poulos's complimentary 3-part "Flexible Forex" training videos. These videos revealed his recent Forex discovery that shows you how to manage risk first when placing a trade, and then look for a profit as quickly as possible, and as many times a day as possible, all according to your schedule.
So if you have any interest in discovering how to finally become a real independent trader in the Forex markets, where you always know what to do, no matter what happens get ready for the following.
Forex Trading On Your Schedule
Bill released a few copies of his new trading method to a few groups of "beta testers" last month, and from the early feedback he's been receiving, it looks like this may be a turning point in Forex trading.
Good News For Individual Forex Traders
Because Bill does everything in his power to give you the "keys to the kingdom" where you understand exactly what to do when you go to place a trade. There's never any second guessing or wondering.
Caution this is not for "systems junkies", or individuals who like to let others make their trading decisions. It is for traders who like to have full control of their destiny in the markets.
Forex Trading Designed For Your Schedule
Bill designed this new method with you and your schedule in mind. It's all about giving you the flexibility you need in your busy day to trade in as little as 20 minutes, or even all day long if that's what you have time for. But he's only planning on releasing 250 copies in the next week that show you how to find trade setups quickly, protect your position with a sort of "risk shield", and then look for profit as fast as possible so you can move on to the next trade.
So if you want to:
Triple your profit potential by simultaneously looking at the short, intermediate, and longer-term trends and then automatically using the dominant trend to virtually ensure your edge and give you the best chance for a successful trade.
Get started quickly and place your first trade with as little as a $500 trading account when you use "mini lots".
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Practically "rub out" account-crippling losses by using simple yet profoundly powerful risk management rules. It's like having a Forex "Risk Shield" so you're protected at all times.
Become an independent trader and stop relying on so-called gurus, black box systems, or other gimmicks. Be totally confident when you know what to do every time, no matter what happens in the markets, then check out the open letter Bill wrote for you that describes all the details:
Letter To All Forex Traders
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The developer's trading courses disappear in a matter of days in the past, and it's a near certainty it will happen again, so if you value your time I really urge you to check out click the image above, and then ask yourself how what he has to say stacks up against how you currently trade.
Good day and good forex trading!
Monday, December 08, 2008
I think the next big disaster that will hit the markets will be in the medical sector. President Elect Obama, and his new Secretary of State Hillary Clinton should be going after providing more affordable health care for the poor and middle class, and the medical companies could take more of a beating they’ve taken so far in this bear market. Shrinking cashflows and profit margins can mean only one thing, shrinking EPS.
For the big Pharmas, their drug pipelines are shrinking as well right now. Merck chairman, Richard T. Clark said, "We anticipate that top-line growth will be offset by the effects of a volatile global economy, fluctuations in the foreign exchange markets, as well as continued challenges for certain key products.” The very large size of these big drug companies also keeps them from continued strong growth, especially in this current deflation economy. With more negatives and positives right now the big drug companies should stay under selling pressure for awhile.
Short-Sell GlaxoSmithKline. Ticker GSK
Sell Entry: 35.88 to 38.32
Take Profit Areas:
30 to 20
On a technical basis long term, its looks like there’s more long positions losing money than in the ones making money on Glaxo. Any bounces up should meet more selling pressure with lower prices to come into 2009 in my opinion.
GlaxoSmithKline Company Profile
GlaxoSmithKline plc (GSK) is a global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products. It has and operations in some 114 countries, with products sold in over 140 countries. The Company operates in two segments: Pharmaceuticals (prescription pharmaceuticals and vaccines), and Consumer Healthcare (over-the-counter medicines, oral care and nutritional healthcare). The markets for its products are the United States, France, Japan, United Kingdom, Italy, Germany and Spain. In June 2008, the Company completed the acquisition of Sirtris Pharmaceuticals, Inc. (Sirtris). Sirtris will become part of GSK's Drug Discovery organization.
Click here to review and Trial the Trading Software I used in determining my by short position on GSK. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Glaxo Smith Kline Stock Chart for a larger view.
Wednesday, December 03, 2008
He recorded a new training video this past weekend that "pulls back the covers" on this discovery & reveals how you can shield your portfolio from risk, especially if you're inexperienced & have little time.
Click here to watch it here:
The Big Surprise
During his research, he confirmed what I and others suspected for a long time:
The collapsing global stock markets and economies are creating pressures that, in turn, are creating more profit potential than we've ever seen before in the Forex markets.
That may come as a big surprise, especially if you're new to trading, but he explains in his training video why this is happening, and how you can get in on it.
You'll also discover:
2 "retracement tricks" most traders flat-out MISS, which, if you know how to spot them, can turn an otherwise losing trade into a profit powerhouse.
The huge "edge" you get over other traders when you automatically identify the predominant trend at any point in time, and then "throw yourself in front of it".
The #1 key to trading Forex you must do every single time before you place a trade before even thinking about profit. When you do this, you automatically "up the odds" that a profit will unfold, and a ton more.
If you're interested in Forex, or have been a little "spooked" by what's been going on in the markets, then this may be the most important trading video you'll ever see this year.
Why? Because after you watch it, you'll be scrambling to start trading Forex this way.
It finally brings flexibility and customization to Forex day trading so that ANYONE can have an "edge", whether you only have 20 minutes to trade, or if you have all day. Your choice.
It's awesome and surprisingly simple. Click to watch it here:
Good day, good investing and trading.
Tuesday, December 02, 2008
Scanning the stock charts early this Tuesday morning, I’m seeing a what I consider a low-risk high-reward short-sell on a gold miner. Longer term I think gold is heading higher, but so is everyone else, and yet it has not happened in a bigger way yet. Why is this? Possibly demand destruction is the culprit? Or is it the basics of fear and greed, and those who are in cash are staying in cash for further news on the financial outlook, and those who got killed already are too afraid to jump back in. The recipe for depression is also in place right now. If things are not fixed soon, we could be going from recession to depression in certain parts of the world. I’d like not to think so, but do watch out for such. Deflation is still there until growing economies of the world come back along with inflation.
Citibank to a lot of analysts and traders are putting buy ratings on Gold and Gold stocks right now. Longer-term I would too, but not so fast in the short to intermediate term. In the mean time, demand destruction seems to be still in place, and solid positive sentiment and money backing it up may still be sitting in cash waiting to jump in later to support prices. Solid support for the Gold price and Gold stock prices may still be further ahead. As I’ve said before, the market looks like it could have a intermediate bounce up, but there better be some real good fundamental reasons why it should or its back to trading the primary trend which is still down.
Warning: Don’t take this trade if you will not be using stop-loss. The stop-loss on this trade could be 15% or more depending upon your sell entry point.
Sell-Short Yamana Gold. Ticker AUY
Sell Entry: 5.68 to 4.82 Range
Take Profit Areas
3.80 – Initial Risk Target
2.78 to 1.76
1.31 to 1.04
I don’t normally put buy or sell recommendations on stocks trading below 12 dollars a share, but many of the biggest companies in the market are trading well below 12 these days. Some of you may think I’m crazy putting a sell like this on. I just follow what this crazy market is telling me, and use stop-loss if I’m crazier than the market makes me think.
Jon Najarian of OptionsMonster.com is expecting the market to trade up for the rest of the year. Maybe he’s going to change that view after yesterday’s recession report and big downside market move, then again maybe not. I’m still going short on AUY with my system. Najarian sees unusual volume in options contracts with institutional money flowing to gold miners. With Citibank and many others possibly buying long right now, if I’m right, I’m going to profit nicely on the short side. If I’m wrong, I’ll take the stop-loss and move on. The great thing about trading is that there’s always another low-risk high reward trade setup coming along to partake in.
Lastly, calling a bottom in this extremely volatile market has proven to be a disaster for everyone, myself included especially during October. Recovery for these blown up mining and all other stocks is likely to include big ups and downs before we eventually find a solid bottom of support. The precious metals mining sector exploded just like the rest of the market, and it’s supposed to be a safe haven investment place. This is the new globalized century folks. Out with the old in with the new in my opinion. Old thinking and ideas I don’t think will work anymore or at least for awhile right now. The market has just proved that big time this last year.
Yamana Gold Company Profile
Yamana Gold Inc. (Yamana) is engaged in the acquisition, exploration, development and operation of mineral properties. Yamana’s principal product is gold. The Company has gold production, development stage properties, exploration properties and land positions in Brazil Chile, Argentina, Mexico, Honduras, Nicaragua and the United States. A total of 104,764 ounces of gold were produced by the Company’s mines during year ended December 31, 2007. During 2007, the Company’s projects include Chapada Mine (Brazil), Sao Francisco Mine (Brazil), Jacobina Mining Complex (Brazil), San Andres Mine (Honduras), Fazenda Brasileiro Mine (Brazil), Alumbrera Mine (Argentina), El Penon Mine (Chile), Minera Florida Mine (Chile) and Rossi Property (United States). On October 13, 2007, Yamana acquired Northern Orion Resources Inc. As of November 5, 2007, Yamana had acquired approximately 90% interest in Meridian Gold Inc.
Click here to review and Trial the Trading Software I used in determining my by short position on AUY. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Yamana Gold Stock Chart for a larger view.
Monday, December 01, 2008
The market looks like it could have made an intermediate term bottom possibly, but I'm not so sure yet, and right now the market could still go down more, especially if more bad news is going to be reported. Intermediate term, I am looking for a upside bounce to previous support levels which are now resistance levels. Longer term I continue to think the market will trade to lower prices for a variety of reasons. It takes time to fix things of this magnitude, and we'll just have to wait and see how the financial fixing all works out.
What Is Black Friday?
Not many people know that the original 'Black Friday' refers to September 24, 1869, when a group of speculators attempted to corner the gold market. They failed, and the resulting collapse in gold, and then stocks, became known as Black Friday.
But last Friday is also known by shoppers and retail merchants as 'Black Friday,' referring to the Friday after Thanksgiving Day. Usually one of the busiest shopping days of the year, Black Friday is said to turn the retail industry's bottom line from red to black. But this year may be different, with shoppers staying away due to economy fears.
This may be more like 'Red Friday' for merchants, trying to entice more customers in with large sales and price reductions. And even though recent today's news reported a Wal-Mart worker dying from eager crowds trampling over him to get to sale items in the store, many stores may not have seen the kind of crowds they needed for a good start to the holiday season.
The point is, there's likely to be more volatility in these markets going forward. Which makes now a great time to learn options, and / or take your options education to the next level.
Some of our users are reporting huge gains, from playing the downside in recent months using options. Those of you with stock losses, may want to consider using specific long option strategies to get you back to break even faster.
So in the spirit of 'Black Friday' we're sharing with you several of our best options trading and education products.
For Beginners, click here for the Options 101 Home Study Course:
For Intermediate traders, click here for the Advanced Options Course:
For Advanced students wanting to take their knowledge to the next level, click here for the Options Mastery Series:
Click here for Option Trading Seminars Webinars and Workshops in Your Area
This is a way of creating some 'Recession Relief' and helping you get a hold of one of the options education training you need to survive and thrive in these markets.
Good day, good investing trading, and Happy Holidays.
Wednesday, November 26, 2008
How to Cope With Today’s Volatile Bear
By Van K Tharp PhD
I’ve been getting a lot of questions about this market. I actually am putting on an extra Blueprint for Trading Success workshop which answers a lot of these types of questions, but it is already sold out. As a result, I thought I'd give you some of the answers you’ve been requesting in a dialogue format.
I’m retired and much of my retirement income has been wiped out. I still work and need to know what I can buy to still make a little extra money.
If I directly answered that question with recommendations it would be high risk for me. I don’t give recommendations… I teach people how to generate their own. People who are asking me for recommendations are not taking personal responsibility, so they’d also be likely to blame me if my recommendations did poorly. Giving recommendations is just not what we do.
First, there are newsletters out there that are excellent. The two best are True Wealth and the Weber Report. Don’t expect any recommendations out of Chris Weber right now because he believes, as I do, that the bear will not end until PE ratios for the DOW and S&P 500 get well into single digits and yields are around 7%. We have a long way to go down before we achieve that.
Steve Sjuggerud has been giving recommendations and getting slaughtered over the last year. He tends to buy things that are hated, but his idea of an extreme doesn’t include 10 standard deviation extremes and that’s what’s happening in this market. Nevertheless, Steve’s track record over many years is still excellent, and I expect him to do well once the carnage is over.
There was another newsletter that ranked really high when I wrote the second edition of Trade Your Way to Financial Freedom. However, that newsletter doesn’t take profits. And over the last two years all of the profits that his recommendations had generated have now been wiped out. In fact, three weeks ago he said that his best recommendation was a stock that they still had a huge profit in. And he said it was dirt cheap at its current price. Yesterday, that stock was down about 65% from the level three weeks ago when he said it was the best deal out there.
So what should I do?
In Safe Strategies for Financial Freedom, I recommended several strategies that are appropriate for this market. The inverse mutual fund strategy would have done very well. In addition, the Graham’s number strategy is getting to the point where there will be lots of qualifying stocks. However, that strategy will still lose money if you don’t wait until the market turns around. For example, I recently bought a stock at $27.50 that had $23 in cash and $119 in total liquid assets. The cash seemed like a good protector for the stock. However, it’s now selling at about $20.
Watch my market type indicator and don’t invest until it turns bullish. And even then keep 25% trailing stops.
What about the advice that I keep hearing that stocks are now bargains and I should hold on if I don’t need my investment soon?
Interesting, I heard that advice at the beginning of this year when we were clearly in a downturn. Now you have to make 100% on your money to break even from those levels. You are not likely to make 100% any time soon. In fact, the stock market to the best of my knowledge has never been up 100% in one year. That’s why 25% trailing stops are the intelligent alternative to buy and hold. When those are broken, and they were broken a long time ago, you need to get out.
Nothing is a bargain now and I would not consider buying until my market type switches from bear volatile to bullish. And that’s probably at least three to six months away. And even that is not indicative of a long term buy. We could still have another very nasty leg down to this market.
Short term traders (day and swing traders) who have mastered themselves are doing quite well in this market. Most are not at that level.
Where do you expect this market to go?
Well I’m not sure what the current PE ratio is on the S&P 500. Perhaps it’s finally reaching its normal level of 15. If that’s the case, with the current S&P 500 at 750, you could probably expect another 50% decline from here—at least before we can reasonably expect a bottom to this market.
When you hear the talking heads on television saying that maybe you should sell out, that’s when we’ve probably hit a bottom. As long as they are saying, “don’t sell at these prices,” we’re near a bottom now… then we are probably a long way away.
How bad can it get?
Well the average American family (who had some wealth) has probably seen their net worth drop by about 50% in the last 12 months. Part of that is due to the drop in real estate prices and part of that is due to the drop in equities.
However, U.S. banks are in fairly good shape now compared to some European banks with huge exposure to emerging markets in East Europe. I expect many countries to have a huge problem because they are in worse condition than the U.S., but they cannot borrow. And many banks in Europe have lent money to those countries. Right now, in contrast, the U.S. can and is printing all the money it needs and that money is still the world’s reserve currency.
Steel mills are cutting back to 50% capacity or more. International shipping has dropped 80% or more. Those effects have not been felt in the economy and in the market yet. What if the revenues of the major U.S. companies drop 50%? Then we could see a DOW at 1000-2000. And at that point, pension funds will be saying they will never again invest in the stock market.
This information is way too negative for me. Can you give me something positive?
I actually agree. If you start thinking too negatively, then your world will turn upside down. You attract into your life what you think about. So here is what I recommend for most of you.
First, consider doing the 365 lessons of A Course in Miracles (ACIM). You’ll basically learn that all of this stuff about the economy is meaningless because it only has the meaning that you give it. In addition, you will learn that “Nothing real can hurt me and nothing unreal exists… Herein lies the peace of God.” Start doing those exercises regularly—get through the first 100 lessons and watch your life change.
Second, watch and listen to the video The Secret. In fact, watch and listen to it about three times or more. When you’ve finished it, then start a gratitude journal and notice how that thinking changes your life. Rhonda Byrne, the author of The Secret, has an excellent gratitude journal.
Third, consider doing the 40 exercises in the Abundance Book by John Randolph Price. Do those exercises more than once.
Do at least 100 exercises in ACIM, complete a full Gratitude Journal, and do the 40 exercises in the Abundance Book at least three times. When you do, assuming that it totally changes your thinking, I can pretty much guarantee that your life circumstances will improve dramatically.
Click here to get ACIM and the Abundance Book through our web site.
Click here to get the Secret video and Gratitude Journal.
Tuesday, November 25, 2008
The Law of Investing - investigate before you invest. This is one of the most important of all the laws of money. You should spend at least as much time studying a particular investment as you do earning the money to put into that particular investment.
Check Every Detail
Never let yourself be rushed into parting with money. You have worked too hard to earn it and taken too long to accumulate it. Investigate every aspect of the investment well before you make any commitment. Ask for full and complete disclosure of every detail. Demand honest, accurate and adequate information on any investment of any kind. If you have any doubt or misgivings at all, you will probably be better off keeping your money in the bank or in a money market investment account than you would be speculating or taking the risk of losing it.
Money is Easy to Lose
The first corollary of the Law of Investing is: "The only thing easy about money is losing it." It is hard to make money in a competitive market but losing it is one of the easiest things you can ever do. A Japanese proverb says, "Making money is like digging with a nail, while losing money is like pouring water on the sand."
The Best Rule of All
The second corollary of this law comes from the self-made billionaire, Marvin Davis, who was asked about his rules for making money in an interview in Forbes Magazine.
He said that he has one simple rule and it is, "Don't lose money." He said that if there is a possibility that you will lose your money, don't part with it in the first place. This principal is so important that you should write it down and put it where you can see it. Read it and reread it over and over.
Time Equals Money
Think of your money as if it were a piece of your life. You have to exchange a certain number of hours, weeks and even years of your time in order to generate a certain amount of money for savings or investment. That time is irreplaceable. It is a part of your precious life that is gone forever. If all you do is hold on to the money, rather than losing it, that alone can assure that you achieve financial security. Don't lose money.
Be Smart About Investing
The third corollary of the Law of Investing says: "If you think you can afford to lose a little, you're going to end up losing a lot."
There is something about the attitude of a person who feels that he has enough money that he can afford to risk losing a little. You remember the old saying, "A fool and his money are soon parted." There's another saying, "When a man with experience meets a man with money, the man with the money is going to end up with the experience and the man with the experience is going to end up with the money." Always ask yourself what would happen if you lost one hundred percent of your money in a prospective investment. Could you handle that? If you could not, don't make the investment in the first place.
Here are two things you can do to apply this law immediately:
First, think back over the various financial mistakes you have made in your life. What did they have in common? What can you learn from them? Accurate diagnosis is half the cure.
Second, invest only in things that you fully understand and believe in. Take investment advice only from people who are financially successful from taking their own advice. Play it safe. It's better to hold onto your money rather than to take a chance of losing it, along with all the time it took you to earn it.
Third, have a plan. Start with gaining the right knowledge, then apply realistic investment goals to attain that fit your style and risk tolerance, then create a low-risk high-reward investing trading plan of price entry, take-profit stop-loss, then take action on those elements. Following a systematic approach to investing in the financial markets will provide more and better successful results.
Fourth, click here to review investing trading information education training software and advisory services that can help you be a successful investor and trader.
Monday, November 24, 2008
I’m a big believer of the growth in agriculture, but the rest of the market may not agree with me right now. Another way to play this stock is to take small positions over time. So in case it does go down, you could average in at lower prices. Don’t over leverage yourself on this stock or any other for that matter, and don’t put all your money on only one stock. Get information, set your investment trading goals, have a price plan where to get in, where to take profit, and where to take stop-loss in case the market moves against you and don’t deviate from that plan. You are now a successful trader who will gain in the long-term.
Buy Compass Minerals International. Ticker CMP
Buy Entry: 42.93 to 47.14
Take Profit Areas:
55.56 to 59.77
60.34 to 64.65
64.97 to 69.61
84.53 to 90.56
105.61 to 113.15
October 29 - Compass Minerals Reports Record Third Quarter
By Kansas City Business Journal
Higher prices for its products and increased sales volume helped Compass Minerals International report the strongest third-quarter financial performance in its history.
In a release Tuesday, the Overland Park-based company (NYSE: CMP) reported earnings of $28.7 million, or 87 cents a share, for the quarter that ended Sept. 30. This is a more than fourfold increase from $6.7 million, or 20 cents a share, last year.
Revenue for the quarter was $237.4 million, up 70 percent from $139.5 million last year.
The company’s stock closed on Wednesday at $52.68, up $10.16, or 24 percent, on volume of 1.6 million shares, according to Yahoo Finance. The stock’s average daily volume the past three months is 879,100 shares.
“Continued strong demand for our products drove robust sales, earnings and cash flow in the third quarter, and we expect our business to remain strong,” CEO Angelo Brisimitzakis said in the release. “Demand for highway deicing salt and sulfate of potash specialty fertilizer has continued to exceed supply. Our strategic investments in additional production capacity at our advantaged facilities will allow us to address supply imbalances while fueling long-term profitable growth.”
Compass Minerals produces minerals, including salt, sulfate of potash specialty fertilizer and magnesium chloride. It provides highway deicing salt to customers in North America and the United Kingdom and specialty fertilizer to growers worldwide. It also produces consumer deicing and water-conditioning products, ingredients used in consumer and commercial foods, and other mineral-based products for consumer, agricultural and industrial applications.
Compass Minerals Company Profile
Compass Minerals International is a leading salt and specialty fertilizer company based in Kansas City. We operate the largest, most productive and some of the longest continually run salt mines in North America and the United Kingdom, with histories that stretch back as far as 1844. The company’s product lines include salt for highway deicing, consumer deicing, water conditioning, consumer and industrial food preparation, agriculture and industrial applications. Our sulfate of potash is used in the production of specialty fertilizers to improve the yield and quality of high-value crops and to improve the durability of turf grasses. Compass Minerals International began trading on the New York Stock Exchange on December 12, 2003 under the ticker CMP.
Click here to review and Trial the Trading Software I used in determining my by long position on CMP. Enter I2S in the "coupon code" field to receive a 5% discount.
Click the Compass Minerals Stock Chart for a larger view.
Friday, November 21, 2008
Van Tharp Trading Workshops
The goal of my Super Trader program is to help people develop a full time trading business that produces consistent, above average profits under various market conditions. This means that you can perform profitably in up markets (both quiet and volatile), in down markets (both quiet and volatile), and sideways markets (both quiet and volatile). And to help traders reach this goal, I’ve designed a five step approach. If you are reading this, then you probably would like that sort of performance, even though you may not be part of the Super Trader program. My objective here is to familiarize you with the five steps.
1. Work on yourself and your personal issues so that they don’t get in the way of your trading. This step must be accomplished first; otherwise, it would interfere with each of the other steps.
2. Develop a business plan as a working document to guide your trading. This business plan is not to raise money, which is the purpose of many business plans. Instead, it’s designed to be a continual work-in-progress to guide you throughout your trading career. The business plan actually helps you with all five of the steps. The plan also includes an overview of the big picture influencing the markets you will be trading and a method for keeping on top of those factors so that you will know when you are wrong. My view of the big picture is updated in the first issue each month of Tharp’s Thoughts.
3. Develop several strategies that fit your view of the big picture and understand how each of these strategies will perform under various market types. The ultimate goal of this step is to develop something that will work well under every possible market condition. It’s actually not that hard to develop a good strategy for any particular market condition (including quiet, sideways). What’s difficult is to develop one strategy that works well under all market conditions—which is what most people attempt to do.
4. Thoroughly understand your objectives and develop a position sizingSM strategy to meet those objectives. Probably less than 10% of all traders and investors understand how important position sizing is to trading performance and even fewer understand that it is through position sizing that you meet your objectives. Thus, the fourth step is to develop position sizing strategies for each system that will help you meet your objectives.
5. Monitor yourself constantly and minimize the number of mistakes that you make. I define a mistake as not following your rules. Thus, for many people who have no written rules, everything they do is a mistake. But if you have followed the first four steps, then you will have rules to guide your trading and you can define a mistake as not following those rules. And, of course, when you repeat the same mistake over and over again, then that is self sabotage. However, by monitoring your mistakes and continuing to work on yourself, you can minimize the impact of such mistakes. People who do this, in my opinion, will tend to produce consistent, above average profits.
Part I: Working On Yourself
This part of the program is so important because everything you do is shaped by your beliefs – in fact, your reality is basically shaped by your beliefs. What’s a belief? Every sentence I’ve written (including this one) reflects my beliefs. Every sentence that comes out of your mouth reflects your beliefs. And your beliefs shape your reality. Who you think you are is shaped by your beliefs.
Let me give you an illustration of how that works. My niece from Malaysia came to live with us when she was 19 years old (my wife and I were putting her through college in the United States). After she’d been with us for a year, one day she said to me, “Uncle, in my next lifetime, I would like to be born beautiful and talented.” Let’s see, she is very artistic. My wife has become a professional painter, but my niece actually completed the initial art course faster than my wife did – she was so good. In addition, she sings like an angel. Also, coming from a liberal arts background she got a degree in biomedical engineering, graduating cum laude. I think she passes the talent criteria with flying colors. As far as beauty, I’d describe her as one of the most stunningly beautiful women I’ve ever seen. And everyone that meets her comments on how beautiful she is. Here was an incredibly beautiful and talented woman, who because of her beliefs, didn’t think she had those qualities at all. Your reality is shaped by your beliefs. By the way, I’ve been working on those beliefs of hers since she’s been living here, and she’s finally coming around.
So who you are is basically shaped by your beliefs about yourself. In addition, you do not trade the markets. Instead, you trade your beliefs about the market. So one of the key aspects of working on yourself is to examine most of your beliefs to determine if they are useful. And if they are not useful, then find beliefs that are more useful. This is one of the key aspects to working on yourself.
You probably will never be free of limiting beliefs and some aspects of self-sabotage during your lifetime, but I consider this step to be complete when you transform about five very limiting aspects of your life and you feel very different about each. Once you’ve accomplished five such transformations, then I consider you capable of generally overcoming future roadblocks that might come up in your trading.
Part II: Developing a Working Business Plan
The business plan part of trading includes step one. In fact, a good business plan includes a thorough examination of the person who is doing the trading – beliefs, issues, strengths, weaknesses, goals – everything you can possibly think of about yourself should be included in this document.
However, the plan should also include many other important things:
Your assessment of the big picture and how you’ll keep up with it. For example, I wrote about the possibility of a huge secular bear market in 2001 when I first started working on Safe Strategies for Financial Freedom. I decided that the big picture should include a) a general assessment of the stock market in the U.S. and world wide; b) a general assessment of the strongest and weakest areas of the world for investments; c) a general assessment of the strength of the dollar (or your home currency if you are not using the U.S. dollar); and d) a general assessment of inflation or deflation potential in the future. I also developed ways to measure each of these and my way of keeping up with them is to write a market update on the first Wednesday of each month.
Other strategies, such as how you will do research, monitor your data, market yourself (to your family or clients), monitor yourself, manage your cash flow, keep track of your trades and your performance. Basically, running a trading business involves many systems other than trading systems. And to have a successful trading business you’ll need to master those others systems.
You’ll need several strategies that fit the big picture and that work when conditions change. For example, strategies that work in volatile bear markets (e.g., 2008) are quite different than those that work in quiet bull markets (e.g., 2003).
A worst-case contingency plan so that you’ll be prepared for anything major that could upset your trading business. This sort of planning often takes as long as six months to complete.
Part III: Develop Trading Strategies That Work Under Various Conditions
In 1999, everyone in America seemed to be a stock market expert. For example, we were giving a stock market workshop at the Embassy Suites at Cary and one of the bartenders said to the other, “Perhaps we should take Dr. Tharp’s Stock Market Workshop.” The other one responded, “No, I don’t need that. I could teach a workshop like that.” Similarly, a waiter in a high class steak restaurant informed us that he was really a trader, but that he just works as a restaurant part time at night. He’d already made over $400,000 trading and he considered himself to be an expert trader. However, my guess is that those people didn’t survive 2000-2002 much less the market we’ve been through in 2008. Why? They are different markets, and a strategy of buying and holding high tech stocks, which worked in 1999, had mixed to horrible results in the years since 1999. However, a strategy of buying inverse index funds as soon as the market signaled a clear bear market in 2007 has worked wonders in 2008. The basic idea is that you have to know what kind of market we are in:·
Up volatile (11%)
Up quiet (19%)
Sideways volatile (20%)
Sideways quiet (38%)
Down volatile (10%)
Down quiet (2%)
These are the six market types and the percentage of time we’ve been in them (rolling 13 week windows) since about 1950. Down quiet markets very seldom occur (about 2% of the time), but the other five market types do occur often enough that you need to be able to find something that works profitably when it does happen.
Typically, most people attempt to develop one strategy that works in all kinds of markets. The waiters and bartenders, and most others for that matter, usually fail. However, there is good news. It’s not that hard to develop a strategy that will work well in each kind of market. What’s difficult is to find one that will work well under all conditions. However, you don’t have to do that if you simply monitor the market condition.
Part IV: Develop a Position Sizing Strategy to Meet Your Objectives
In our workshops we typically play a marble game. Marbles are placed into a bag to represent a trading system. For example, a trading system might include 20% 10R winners, meaning that when one of those marbles is drawn, you make 10 times what you risk. The system might also include 70% 1R losers, meaning that when one of those marbles is drawn you lose whatever you risk. And lastly, the system might also include 10% 5R losers, meaning when those marbles are drawn, you lose five times what you risk. By the way, the marbles are always replaced after they are drawn so that your odds remain the same after each draw.
Now some of you might be thinking, "But you’ll lose 80% of the time. How can you possibly make money?" Let’s say there are 100 marbles in the bag. If you total the R value of all the marbles in the bag, you’ll find that they total to +80R. That means that on the average you’ll make 0.8R per pull over many, many marble draws. Thus, the expectancy of the system is 0.8R (after 100 trades, you’ll probably be up about 80R). And if you risked about 1% on each marble pull, then after 100 pulls you’d probably be up more than 80%. Perhaps now the system doesn’t seem so bad.
However, when I play the game I usually provide the audience with different incentives. For example, I might say that if you go bankrupt, you are out of the game and have to pay a fine of $10. I might also say that if you end the game down 50%, you have to pay a fine of $5. I could also say that if you lose money by the end of the game, it will cost you $2. On the positive side, I might say that if you make money, you’ll win $2. If you make 50%, you’ll win $5. And I might also say, if you make the most money, you’ll win whatever is left in the pot – let’s say $100. Notice how my incentives set up a number of objectives for the game. For example, here are three possible objectives:
To win the game at all costs, including risking bankruptcy. The person who wins the game will usually have this objective.
To win at least $2 and to make sure that you don’t lose more than $2. Notice how this is an entirely different objective.
To win the game, but to make sure that you don’t go bankrupt. Again, this is an entirely different objective from the first two.
When I tell people how to strategize about the game, I suggest that they answer the following questions:
Who are you?
What are your objectives?
What is your position sizing strategy to reach your objectives?
Under what conditions might you be willing to change your position sizing strategy?
If 100 people play the game (starting with $100,000) and they all get the same trades (i.e., the same marble pulls randomly done and replaced), then chances are there will be 100 different equities at the end of the game. You will also be able to group people according to their objectives. For example, those who are trying to make money and have minimal losses will have a minimal fluctuation of equity around a 5-10% gain. However, those trying to win the game will have huge equity fluctuations ranging from bankruptcy to making millions.
My point here is that the game illustrates what is really important to trading success – the “how much” variable of position sizing. Thus, a key step for anyone wanting consistent profits is to develop a strategy with a positive expectancy and then develop a position sizing strategy that maximizes the probability of meeting your objectives. This hugely important step is largely ignored by most traders and investors, including most professionals.
Definitive Guide To Position Sizing
How to Evaluate Your System and Use Position Sizing to Meet Your Objectives. 90% of the Performance Variation of Professional Traders Is Due to Position Sizing. And Position Sizing Is the Key to Meeting Your Trading Objectives.
Part V: Taking Steps to Minimize Your Mistakes
What happens when you don’t follow your rules? You make a trade when your system didn’t tell you to trade. You are supposed to get out when your stop is hit, but you don’t get out. Your position sizing is way too big on one particular trade. Those are all mistakes. And mistakes can be very costly.
We’ve done some preliminary research on the cost of mistakes and results suggest that for leveraged traders, mistakes can run as high as 4R per mistake. If that person makes ten mistakes in a year, then that person could find his or her profits dropping by about 40R. That means that if he or she made 50% on the year – they could have made nearly 100%. If he or she lost 20%, then mistake free trading could have made that person profitable.
For long term investors with wide stops, mistakes probably cost about 0.4R per mistake. The total cost per year is about 4R. However, the average investor is lucky to make 20% per year so 10 mistakes could easily cost them 20% of their profits.
The final step that you must concentrate on is to minimize the impact of mistakes on your trading. This amounts to developing a disciplined routine in your trading and continuing step one – working on yourself.
About Van Tharp: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling book Trade Your Way to Financial Freedom and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at Intertnational Institute of Trading Mastery.