Tuesday, March 31, 2009
Forex MegaDroid™ Is Proving That A Robot Can Trade With 95.82% Accuracy In Every Single Market Condition and At Least Quadruple Every Single Dollar Deposited
Forex MegaDroid is the most talked about Forex robot in the past few years and you'll understand why when you put it to work.
The most anticipated Forex robot in the past 21 years is finally live. A true multi-market condition robot: trending, non-trending, volatile, non-volatile. Forex MegaDroid nails a 95.82% accuracy rate (out of 100 trades, 95 profitable!)
Old technology based robots are a thing of the past. No more of "single market condition" robots. Produce a great profit in one market condition, give it all away when the market changes behavior.
The Forex MegaDroid robot has produced a 300.20% Net proflt over the past 3 months. That is 100% (account doubling) performance every single month. How much profit did it produce prior to that?
Click here to check it out.
This is the first robot that uses a new Artificial Intelligence technology: RCTPA
You probably know by now what that means, but if you don't, it means that this is the only Forex robot that sees into the immediate future with an uncanny accuracy rate.
Every single other robot on the market will base its decisions on the past rather than the future. They simply can't see what's coming and hence they are not accurate enough performance-wise.
The key to breaking a new frontier in automatic robot trading is being able to trade with a robot that accurately sees what will happen rather than what has happened, to the tune of 95.82%, and being able to double your deposit every single month, without having to give your gains away when market conditions change.
You can see performance proof and every single detail of Forex MegaDroid by clicking here:
A lot of people have been asking about client support. This is probably one of the most important questions and I want to address it. John and Albert have hired and trained 4 people to provide you with the absolute best client support you can get (of course, on top of them being part of the support team every day).
How dedicated to client support are they? Well this support team has one objective: keep clients happy.
Only way of doing this is by providing accurate, quick and helpful support.
Both John and Albert are very “service oriented” people and this you can see on their letter. Their opinion is that they want to provide others what they expect when buying any type of product – great client care.
Learn more about Forex MegaDroid here:
This robot is going to break a new frontier in Forex trading. A frontier that has not been broken in over 20 years.
Good day and good forex trading!
Monday, March 30, 2009
The Upcoming Market Week Events
As I’m scanning the stock charts this early Monday morning looking for low-risk high-reward trade setups, I’m reviewing this week’s upcoming events that could affect the markets. President Obama is telling the Auto Makers to recreate themselves if they want more money, AIG is delaying providing money for real estate ventures, regulators are seeing new roles for Fannie and Freddie, defaults rise on FHA insured mortgages, UBS is seeing more write-downs, and oil is heading up it looks like.
Scanning for Low-Risk High-Reward Trade Setups
My scans popped up what looks to me as a low-risk high-reward short-sell trade on an aerospace defense company. I believe this stock and the rest of the market is in a bottoming process right now, and if we do see lower lows from here, those lows would be a very good buying opportunity in the short, intermediate, and long term. It looks as though the long term investors are possibly accumulating at current prices now which are resulting in this continued bear market rally. For the time being I’m going short on the following stock.
Sell Short Boeing – Ticker BA
Sell Entry: 38.90 to 37.07
Take Profit Areas: 35.46, 33.85 to 32.24, 27.96 to 27.66, 23.34 to 23.09
Boeing Company Profile
The Boeing Company (Boeing) is involved in the design, development, manufacture, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. The Company operates in five principal segments: Commercial Airplanes, Boeing Military Aircraft (BMA), Network and Space Systems (N&SS), Global Services and Support (GS&S) and Boeing Capital Corporation (BCC). BMA, N&SS and GS&S comprise the Company’s Integrated Defense Systems (IDS) business. The Other segment classification principally includes the activities of Engineering, Operations and Technology (EO&T), an advanced research and development organization focused on technologies, processes and the creation of new products. In December 2008, Boeing announced that it has completed its acquisition of Federated Software Group, whose engineering services and software system help track and distribute equipment and personnel for the United States Department of Defense.
Click here to review and Trial the Trading Software I used in determining my short position on BA. Enter I2S in the "coupon code" field to receive the 5% discount.
Click the Boeing Stock Chart for a larger view.
Friday, March 27, 2009
Click here to watch the latest crude oil video outlook.
May crude oil closed higher on Thursday as it extends this month's rally. The high-range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If May extends this month's rally, January's high crossing at 58.31 is the next upside target. Closes below the 20-day moving average crossing at 48.67 would confirm that a short-term top has been posted. First resistance is today's high crossing at 54.66. Second resistance is January's high crossing at 58.31. First support is the 10-day moving average crossing at 51.27. Second support is the 20-day moving average crossing at 48.67.
April heating oil closed higher on Thursday as it extends this month's rally. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are neutral to bullish but very overbought warning bull's to use caution as a short-term top might be in or is near. Closes below the 10-day moving average crossing at 136.00 would temper the near-term friendly outlook in the market. Closes below the 20-day moving average crossing at 127.88 would confirm that a short-term top has been posted. If April extends this week's rally, the reaction high crossing at 154.67 is the next upside target. First resistance is today's high crossing at 150.50. Second resistance is January's high crossing at 154.67. First support is the 10-day moving average crossing at 136.00. Second support is the 20-day moving average crossing at 127.88.
April unleaded gas closed higher on Thursday extending this month's rally. The high-range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If April extends this month's rally, the 25% retracement level of last year's decline crossing at 169.52 is the next upside target. Closes below the 20-day moving average crossing at 138.22 would confirm that a short-term top has been posted. First resistance is today's high crossing at 153.72. Second resistance is the 25% retracement level of last year's decline crossing at 169.52. First support is the 10-day moving average crossing at 144.10. Second support is the 20-day moving average crossing at 138.22.
April Henry natural closed sharply lower on Thursday and below the 20-day moving average crossing at 4.054 signaling that a short-term top has been posted. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are overbought and are turning neutral hinting that a short-term top might be in or is near. If April renews this year's decline, monthly support crossing at 3.390 is the next downside target. Closes above the reaction high crossing at 4.380 are needed to confirm that a short-term low has been posted. First resistance is the reaction high crossing at 4.380. Second resistance is last Thursday's high crossing at 4.424. First support is today's low crossing at 4.889. Second support is last week's low crossing at 3.672.
Click here to watch the latest crude oil video outlook.
Thursday, March 26, 2009
The June Dollar closed slightly lower on Wednesday but remains above the 62% retracement level of the December-March rally crossing at 84.10. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near-term. Closes below the weekly uptrend line crossing near 83.00 would confirm that a major top in the Dollar has been posted while opening the door for a larger-degree decline this spring. Closes above the 20-day moving average crossing at 87.42 would temper the near-term bearish outlook in the market. First resistance is the 10-day moving average crossing at 85.64. Second resistance is the 20-day moving average crossing at 87.42. First support is last Thursday's low crossing at 83.14. Second support is the weekly uptrend line crossing near 83.00.
The June Euro closed higher on Wednesday and above the 50% retracement level of the December-March decline crossing at 135.215. The mid-range close sets the stage for a steady opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the 62% retracement level of the December-March decline crossing at 137.736 is the next upside target. Closes below the 20-day moving average crossing at 129.820 would confirm that a short-term top has been posted. First resistance is last Thursday's high crossing at 137.370. Second resistance is the 62% retracement level crossing at 137.736. First support is the 10-day moving average crossing at 133.116. Second support is the 20-day moving average crossing at 129.820.
The June British Pound closed lower due to profit taking on Wednesday as it consolidated some of this month's rally. The low-
range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, February's high crossing at 1.4950 is the next upside target. Closes below the 20-day moving average crossing at 1.4175 would confirm that a short-term top has been posted. First resistance is Tuesday's high crossing at 1.4782. Second resistance is February's high crossing at 1.4950. First support is the 10-day moving average crossing at 1.4301. Second support is the 20-day moving average crossing at 1.4175.
The June Swiss Franc closed higher on Wednesday but remains below the 50% retracement level of the December-March decline crossing at .8965. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near-term. If June extends this week's rally, the 62% retracement level of the December-March decline crossing at .9103 is the next upside target. Closes below the 20-day moving average crossing at .8653 would confirm that a short-term top has been posted. First resistance is last Thursday's high crossing at .8980. Second resistance is the 62% retracement level of the December-March decline crossing at .9103. First support is the 10-day moving average crossing at .8708. Second support is the 20-day moving average crossing at .8653.
The June Canadian Dollar closed lower due to profit taking on Wednesday as it consolidated some of this month's rally. The low-range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near-term. If June extends this month's rally, the reaction high crossing at 82.30 is the next upside target. Closes below the 20-day moving average crossing at 79.08 would confirm that a short-term top has been posted. First resistance is last Thursday's high crossing at 82.09. Second resistance is the reaction high average crossing at 82.30. First support is the 10-day moving average crossing at 80.06. Second support is the 20-day moving average crossing at 79.08.
The June Japanese Yen closed higher due to short covering on Wednesday as it consolidates some of Monday's decline. The high-range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near-term. Closes below last Tuesday's low crossing at .10119 would confirm that a short-term top has been posted. If June renews this month's rally, the reaction high crossing at .10822 is the next upside target. First resistance is last Thursday's high crossing at .10703. Second resistance is the reaction high crossing at .10822. First support is Tuesday's low crossing at .10159. Second support is last Tuesday's low crossing at .10119.
Wednesday, March 25, 2009
Good Times Bad Times
Charles Dickens began a famous novel by saying, It was the best of times, it was the worst of times. As I look at what is going on in the economy and real estate investing, I think that statement perfectly describes our economic situation right now.
New School Financial Intelligence
Many people are struggling just hoping to get by and not lose their job, house, car and other basics of life. For well-positioned investors, however, this economy represents the opportunity of a lifetime to snatch up assets at a discount. The difference between those who find it to be the best of times and those who find it to be the worst of times is simply their knowledge and financial IQ. Smart investors right now are taking advantage of low interest rates and incredible deals on real estate as they build the investments that will provide thousands of dollars of cashflow in their pockets every month.
New School Financial Coaching
If you’re still hoping for President Obama or someone else to save you, I fear that your hope may be misplaced. If you’re ready to save yourself and start making this recession the best thing that ever happened for your investing, then I’d like to introduce you to Rich Dad’s Coaching program.
Opportunity Amongst Disaster
Rich Dad’s Coaching was created to provide people an opportunity to work one-on-one with one of Robert Kiyosaki's certified Coaches in creating your own real estate investing plan that will help you take advantage of these amazing deals. If you do your part, you’re guaranteed to complete at least one transaction.
If you’re serious about making this recession work for you, click here to learn and take action.
Click here to review another 21st Century Recession Proof Income Model
Tuesday, March 24, 2009
On February 27, the March issue of Elliott Wave International’s monthly Asian-Pacific Financial Forecast (APFF) opened with the following paragraph:
The dismal news headlines continue to roll in for the Asia-Pacific region: In January, Singapore’s exports dropped...the most in at least 22 years. Japan’s Q4 2008 GDP collapsed at an annualized rate of 12.7%, the fastest decline since 1974. The Federation of Indian Export Organizations reports that, by March, Indian exporters alone may cut 10 million jobs – a number about equal to the population of Delhi or New York City. In early February, China said that as many as 26 million of the country’s estimated 130 million migrant workers are now unemployed – a number about equal to the populations of Shanghai and Hong Kong combined.
For most investors, this news summary would probably motivate an immediate “sell” order on their stocks holdings in those countries. But you may already know that the Elliott Wave Principle is a contrarian investment method. That's why the March APFF continued its analysis with the following:
But all of that is old news – the natural, lagging fundamental expressions of Asia’s deepest financial crisis in decades – and it tells us nothing about the future of the stock market. To determine that, the best tools we know of are Elliott wave price patterns.
Exactly: Making investment decisions based on old news is like trying to drive a car by looking in the rear-view mirror. To get where you’re going, you need a forward-looking method.
On that, the just-published APFF Interim Report has the following to say:
Asian-Pacific Financial Forecast, Interim Report
March 23, 2009
In the March 2009 issue of The Asian-Pacific Financial Forecast, we showed how pattern, price, time and sentiment considerations were pointing to the end of... five-wave declines in most major Asian-Pacific indexes by late March. [Now] the daily SENSEX chart shows how the decline since the 2008 high can be counted as three waves.
Translation: Current Elliott wave picture in India’s SENSEX stock index “may offer investors a rewarding... opportunity.”
Click here to receive a Free Asia Report
Thursday, March 19, 2009
Several recent reports have pointed out that, in the years before its global train wreck, AIG ran itself less like an insurance company and more like a hedge fund. Consider this comment by New York Times columnist Tom Friedman, for example:
AIG an Un-Regulated Hedge Fund?
Let’s not forget, A.I.G. was basically running an unregulated hedge fund inside a AAA-rated insurance company. And — like Madoff, who was selling phantom stocks — A.I.G. was selling, in effect, phantom insurance against the default of bundled subprime mortgages and other debt — insurance that A.I.G. had nowhere near enough capital to back up when bonds went bust. It was a hedge fund with no hedges.
Hedge or Not To Hedge
“A hedge fund with no hedges.” Well, there’s been a lot of that going around. Read now this quote from the May 2008 Elliott Wave Theorist by EWI’s founder and president Bob Prechter. And keep in mind that Bob wrote this months before the Bernie Madoff hedge fund scandal broke and before AIG’s first bailout in September ’08 (italics added):
May 2008, Elliott Wave Theorist
Hedge Funds: The Same Story as 1999-2000 but Bigger
The spectacle of hedge funds losing money has surprised investors who thought their managers were experts at investing and that their expertise would accrue to the providers of capital. Everyone seems shocked that “the smart money was not so smart.” But actually the fund operators are very smart. Making money for clients is certainly one of the goals of hedge-fund managers, but another goal—if not their primary goal—is to make money for themselves. Managers get paid a percentage of profits over fixed intervals, and they do not participate in losses. So, the clever thing to do is to leverage the clients’ money to the hilt, because two or three super-profitable years allow a manager to retire immensely wealthy. That’s what managers did, and for many of them it worked. It worked so well that they will never have to work again. It is the investors who were naïve, not the managers who were stupid.
One thing that bothered me from the start about the whole hedge-fund mania was the media’s cultivation of another misnomer. Hedge funds hedge; but these funds are entirely on the opposite end of the spectrum: as leveraged and vulnerable as you can get. The term “hedge fund” so egregiously mis-applied is like what happened to another useful, venerable and previously accurate term in the early 2000s. That’s when the media foisted the term “market timer” on people who cheated the market by back-stamping the times of trades. Market timers and hedge funds used to be considered practitioners of decent professions. Now the terms are used for people who run—or are perceived as running—scams. The ticket back-daters should be called frauds, and today’s so-called hedge funds should be called spec funds.
Investors in spec funds also seemed to believe that their managers would buy and sell as necessary in anticipating market conditions, as if they are smart traders. But they are not traders. They are buyers on leverage. There is hardly a trader among them. Traders go long and short and sometimes they go to cash, depending on their analytical outlook. Buyers just buy. Does this sound familiar? It should, because the spec-fund phenomenon since 2003 has been nothing but a beefed-up, more-leveraged version of the equally erroneously named “day-trader” phenomenon of 1999-2000. Back then, mild corrections in the stock market in 1999 and 2000 decimated these so-called traders who were really just buyers.
Just as small corrections erased the profits of the “day-traders” of nine and ten years ago, all it took was a slide in the extreme fringes of the debt market to wreak havoc on leveraged funds’ profits. And it has happened for the same reason: They are simply one-sided buyers, and the market finally reminded investors in these funds that TANSTAAFL. (If you don’t know this term, Google it.)
Which brings me to the next issue: The buyers in these markets, armed with formulas, really did seem to think that there was such a thing as a free lunch. Hey, just borrow short and leverage long, and you get free interest! As the song says, “Money for Nothing.” But formulas never work in the stock market, because they tend not to include a built-in expectation of radical change. With Elliott waves, an analyst has a bias toward expecting change. Sometimes it is a counterproductive bias, but I think it is less potentially ruinous than a bias toward increasingly expecting conditions to maintain the longer they persist.
Formula creators almost always seem to figure that the past will be like the future, and the longer a trend or condition has been in force, the more they think it will continue, which is backwards. Some options models, for example, rate a period of low volatility in the market as increasingly low-risk for options writing, when in fact the risk of bigger volatility is increasing with every passing day. Some of these hedge-fund-management programmers believed that they had established the cost of “guaranteeing” the value of their underlying bond positions with insurance. When they built the programs, the cost of insuring a million dollars’ worth of the IOUs in its portfolio was low. And bond insurance had been cheap for half a century, so why should anyone think it would change? As the crisis unfolded, however, insurers panicked, and the cost of the same insurance zoomed. The funds’ investing formula did not need just a tweak; it broke. Many managers could no longer afford insurance, and suddenly they were as naked as nature intended.
That word panicked is important. Formulas don’t take into account the abruptness and violence of mass human emotions, and they certainly don’t try to predict in what violent actions they will manifest themselves. Elliott waves are waves of optimism and pessimism, and big ones are so important that they have implications for social action. That is why Conquer the Crash anticipates a radical, mass-psychological change toward the idea of debt, from historic complacency to fear. When insurers are confident enough to guarantee financial outcomes, the old financial trends and conditions are likely mature.
Like the day-trading era, the whole hedge-fund affair has been a mess from the beginning. And the story is not really new. It is much the same story as 1999-2000 with the day traders, with just enough superficial difference to seem new.
Insights like these – which often come days, months, or even years ahead of the news – are exactly why you should be reading Bob Prechter’s Elliott Wave Theorist. The latest “Special Investment Issue” is online now – read it risk-free today.
Wednesday, March 18, 2009
Click the highlighted links below for expanded information.
Global Investing Trading
Today I’m writing about long term investing trading the global growth trend. Two very significant country economies going forward are China and India. Chindia as some call it, comprises about two billion people, and the surrounding areas of Asia and the Middle East are very significant also. The growth moving forward long term in these areas is exponential that was has happened in the past, and a great opportunity for anyone around the world to benefit from.
ADR – Advance Depository Receipt
One great way to invest in global growth is through Foreign stocks listed on the NYSE and Nasdaq stock exchanges as ADR’s or what’s called Advance Depository Receipts. Today with online trading access anyone from any country can open an investing trading account with a number of different brokers from around the world and invest and trade in global growth companies. Of course locals in their respective countries may choose to invest trade direct with their local brokers and exchanges, but also have the choice of an account with an international broker too. Direct investment in foreign companies on foreign exchanges through foreign brokers may or may not be available to foreign investor’s traders. Check with a broker from the country you’re interested in investing trading whether you qualify to open a investment trading account that specific country.
The Most Liquid Financial Market in the World
Another very good market to be invested trading in is the forex or currency market. With its 24 hours a day 5 day a week market, buy or sell in the most liquid financial market in the world. Forex involves high leverage and risk. The first major factor to understand and implement is the amount of leverage you’re using and understand its profit loss consequences, or what is called risk management. Simple to learn and once implemented now you can fine tune the amount of leverage you’re using creating low-risk high-reward returns of 3:1 plus profilt/loss ratios. Managing your leverage and only entering investments or trades with 3:1 plus profit/loss ratios or another term reward/risk ratio. With a disciplined risk management system such as this, you will have smaller losses and much bigger winners providing sustainable strong long term returns. The more active you are in managing and always fine tuning your portfolio income, the more potential you have in earning above average returns.
New Economy Low-Risk High-Reward Profitability
The greatest thing of the new millennium is the availability of online practice demo investing trading systems for
stocks, options, forex, and
futures. Trading the live markets with fake money to practice and hone your investing trading skills. I called it interactive new school financial intelligence old school never taught. I learned this way as many others have also. Now there’s no more need to aimlessly throw real money at the market and lose because you don’t know what’s going on. You do the practice losing first with fake money, then you go with your real money after, when you feel confident enough to do so.
Institution Program Trading – Small Investor Trader Automated Trading
Also another new investing trading innovation today is automated trading computer programs. Wallstreet has been using computer program trading for decades. Automated program trading is now available and very affordable for small investors and traders too. I highly recommend to investigate and use these very disciplined low-risk high-reward stock and forex auto trade programs. They produce phenomenal low-risk high-reward returns once implemented, fine tuned, monitored and managed.
Global Financial Opportunities
The opportunity for anyone in any country with even small amounts of investing money has the ability to invest and trade in the global financial markets now. Globalization is here providing a multitude of low-risk high-reward investment and trade opportunities. Start with knowledge, set dated investment trading goals, have an investing trading plan, execute that plan or plans with discipline, and benefit with better than average returns in the long term.
Good day, good investing and trading for your financial freedom future!
Tuesday, March 17, 2009
Recession Proof Income Stream. Click Here for Financial Opportunity from the Financial Crisis
6 Questions You Should Be Asking About the Financial Crisis
Elliott Wave International, the world’s largest market forecasting firm, receives thousands of questions every year from web site visitors and subscribers on their free Message Board.
Here the company shares 6 of the recent critical questions on the financial crisis and 6 answers provided by their professional analysts.
For more free questions and answers or to submit your own question, visit Elliott Wave International’s Message Board.
Q: Can increased government spending help stop the crisis?
What do you think about the new mortgage bailout plan – or bailouts and proposals for additional government spending in general? The opinions on whether or not this will ultimately work seem so divided...
In Ch. 13 of his Conquer the Crash, “Can the Fed Stop Deflation?”, Bob Prechter writes; quote: "Can the government spend our way out of deflation and depression? Governments sometimes employ aspects of' 'fiscal policy,' i.e., altering spending or taxing policies, to 'pump up' demand for goods and services. Raising taxes for any reason would be harmful. Increasing government spending (with or without raising taxes) simply transfers wealth from savers to spenders, substituting a short-run stimulus for long-run financial deterioration. Japan has used this approach for twelve years, and it hasn’t worked. Slashing taxes absent government spending cuts would be useless because the government would have to borrow the difference. Cutting government spending is a good thing, but politics will prevent its happening prior to a crisis. ... Prior excesses have resulted in a lack of solutions to the deflation problem. Like the discomfort of drug addiction withdrawal, the discomfort of credit addiction withdrawal cannot be avoided. The time to have thought about avoiding a system-wide deflation was years ago. Now it’s too late. It does not matter how it happens; in the right psychological environment, deflation will win, at least initially."
Q: In deflation, what's best: to have no debts or preserve capital?
During a deflationary period, if you had to choose one or the other – debt reduction or preservation of capital – which one is MOST important?
In Ch. 29 of Conquer the Crash, "Calling in Loans and Paying off Debts," Elliott Wave International’s founder and president Bob Prechter writes; quote: "Being debt-free means that you are freer, period. You don’t have to sweat credit card payments. You don’t have to sweat home or auto repossession or loss of your business. You don’t have to work 6 percent more, or 10 percent more, or 18 percent more just to stay even. ...the best mortgage is none at all. If you own your home outright and lose your job, you will still have a residence." Of course, one could pay off some debts AND keep some capital – it all depends on an individual's risk appetite and tolerance.
Q: Which news and events can move the market and which can't?
I've noticed that a lot of times, the stock market does the opposite of what the news suggests it should do – or does nothing at all. Can you make a distinction, if there is one, between news that does not move the market and the news that does? I'm talking specifically about the news and anticipation of another bailout plan plus stimulus package that is supposedly rallying U.S. stocks right now.
The subject of the news is almost irrelevant. What IS relevant is the state of investors' collective mood at the time of the news release. If they feel bullish (or bearish), they will interpret just about any news story as bullish (or bearish) too. (Or "dismiss the news," as financial commentators often put it.) If you need a good example, just compare the February 6 horrific U.S. jobs report with that day's rally in the DJIA. Or, contrast the February 10 passage of the "$838 Billion Economic Stimulus Package" with a 300+ drop on the Dow. The important thing to keep in mind is that while the news can cause short-term price spikes, it has no effect on the longer-term trend; only social mood does.
Q: If this deflation deepens, will the US dollar crash?
Bob Prechter’s Conquer the Crash and your monthly publications like Bob’s Elliott Wave Theorist, you've been saying that in deflation, "cash is king" as the value of the dollar rises. But won't the U.S. government's spending spree cause the dollar to crash instead against the euro and other currencies?
It's very important to make a distinction between the dollar's domestic and international values. In a deflation, the value of any currency – the U.S. dollar, in this case – rises domestically: As asset prices fall, each unit of currency buys more domestically-available goods and services. "Cash is the only asset that assuredly rises in value during deflation." – Bob Prechter, Conquer the Crash, Ch. 18. However, the USD's international value (as represented by the U.S. Dollar Index) in a deflation can rise OR fall relative to other currencies. If, for instance, the euro is deflating faster than the dollar, then the dollar's value relative to the euro will rise, and vice versa.
Q: Won't government bailouts turn deflation into inflation?
Trillions of dollars in bailouts "injected" into the economy – won't they reverse deflation and turn it into inflation instead?
Here is a quote from Bob Prechter’s October 2008 Elliott Wave Theorist: "Believers in perpetual inflation think that the government can keep assuming others’ bad debts infinitely. But it can’t. The only reason that Congress has gotten away with issuing this latest blizzard of new IOUs is that society is still near the top of a Grand Supercycle, so optimism and confidence still have the upper hand. But as pessimism and skepticism continue to wax and the economy contracts, the bond market will figure out that the Treasury will be unable to fund all these obligations with tax collections. Then Treasury bond prices will begin falling as if they were sub-prime mortgages. A collapsing bond market is deflation; it is a contraction of the outstanding credit supply. Recent bailout schemes will not reverse the deflationary freight train. They will serve only to confuse the marketplace and hinder the efficient retirement of bad debts, thus exacerbating the crisis and aggravating investors’ uncertainties and thereby falling right in line with the declining trend of social mood."
Q: When will recession end – and DEPRESSION begin?
When do you think the economic DEPRESSION will officially begin?
It took mainstream economists over a year to recognize the "official" start of the recession! Because a depression is a much bigger and rarer event, the delay with its "official" recognition will likely be even greater. Not to mention the fact that, interestingly, there is no "official" definition of a depression; even if there were one, ours here at Elliott Wave International would probably differ. Rest assured, though: We intend to update subscribers on any "progress" in that direction.
To read 30+ additional questions and answers on the financial crisis, investing, capital safety and more, visit Elliott Wave International’s free Message Board.
Monday, March 16, 2009
Scanning the Charts for Opportunity
As I scan the charts this Monday morning for some low-risk high-rewards trade setups for this week, I’m getting updated on this week’s news and upcoming events. The first thing that grabs my attention is this headline. China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries. China owns $1 trillion of USA debt. Keep your eye on that significant one. President Obama says he’s going to be working hard this week to get more credit flowing again. The U.S. Securities and Exchange Commission will be meeting on April 8 to consider whether to propose short sale price test rules. I don’t think they should but then again, maybe it’s a good idea right now. The Financial Accounting Standards Board is planning to discuss mark-to-market accounting rules on Monday.
Last Week and This Week
The market had a pretty good upside move last week considering the downtrend it’s been in. I’m hearing more optimism to keep buying stock at these levels. I’m not betting on it just yet. In fact, I’m putting a short term short sell call on an investment bank titan this week. I’m looking for one more big selloff in the market to find a solid sustainable bottom at least in the near to intermediate term. Longer term stock prices have gone down so much, the longer term investors might start coming in more and supporting prices somewhat. The market right now looks to be in a bottoming process. We will just have to watch, see, and be ready to move with it on whatever it does.
Selling a Big Bank
On September 1, 2008 I put a short-sell on JP Morgan at $38 a share, and I got a lot of negative comments feedback about my JP short-sale pick. JP Morgan did indeed head south as did everything else in that bloody October, and now it’s trading for $23.75. This week, I’m putting another short sale on JP Morgan’s major competitor for the short term. I believe long term investors would do well to be buying into another big selloff of the financials if and when it happens. The buys of the century look to be showing up possibly. For the near term, I’m going short on the following financial stock.
Short Sell Goldman Sachs. Ticker GS
Short Sell Entry: 95.64 to 107.41
Stop-Loss: 108 to 110
Take Profit Areas: 91.44, 87.24 to 83.04, 78.00
Goldman Sachs Company Profile
The Goldman Sachs Group, Inc. (Goldman Sachs) is a bank holding company and global investment banking, securities and investment management firm that provides services worldwide to a corporations, financial institutions, governments and high-net-worth individuals. Its activities are divided into three segments: Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services. On December 11, 2007, Credit-Based Asset Servicing and Securitization LLC, a sub-prime mortgage investor, completed the sale of its Litton Loan Servicing business to Goldman Sachs. In May 2008, MBF Healthcare Partners, LP and Goldman Sachs announced the acquisition of OMNI Home Care (OMNI), a provider of skilled nursing and therapy home healthcare services. MBF Healthcare Partners, LP and Goldman Sachs will share joint ownership of OMNI. In June 2008, its division, Goldman Sachs Urban Investment Group, and Cordova, Smart & Williams, LLC announced the acquisition of H2O Plus, LLC.
Click here to review and Trial the Trading Software I used in determining my short position on GS. Enter I2S in the "coupon code" field to receive the 5% discount.
Click the Goldman Sachs Stock Chart for a larger view.
Friday, March 13, 2009
Major Market Moves:
When noticing major market moves during news releases: 30, 50 or even 100 pip movements inside of a few minutes; you are probably asking yourself, ‘why am I not grabbing a few of those pips?’ The truth of that matter is that while it looks easy, that is usually not the case. During major market news prices move up and down very quickly, spreads often widen, and it may be difficult to get your orders filled. News traders understand that while grabbing those large pip movements looks easy, it can also be very frustrating.
There is no doubt; during economic news the market does make big moves. There are a lot of news announcements each week, all of which can potentially offer you the chance to grab some pips. You can find the news releases and their times on the IBFX web site:
Your main objective will be to determine the country and currency the release pertains to, and of course the time of the release. This will establish your key area of focus, or which currency pairs to trade.
You do not have to trade every announcement. Here is a list of some of the better U.S. market news announcement topics.
- Employment Growth
- Interest Rate Decisions
- Trade Balance
- Gross Domestic Product
- Retail Sales
- Durable Goods
- Inflation reports (Consumer Price Index & Producer Price Index)
- Foreign Purchases reports
You can look for similar reports from other countries that will also cause sizable market volatility.
Trading the News is Risky:
Trading news announcements can be the riskiest type of trading you might embark upon. Many traders loose more trying to trade the news than they do trading with any other style or approach.
The most profitable way I have found to take advantage of a news announcement is to wait for certain trading signals, signals that I have found tend to indicate the best entry points. You should never just enter a trade with a guess of which way you think the market is going to move. You may have to wait 5 to 30 minutes before you see a proper entry signal. Another key time factor I monitor is the pip spreads, as they can often widen during the first few minutes of a major news release, I tend to wait for the spreads to calm down and return normal before placing a trade. In this manner, I can better trust that the market may have a true direction.
The time frame I prefer when trading the news is the 5 minute time frame. I have noticed that the 1 minute chart tends to show too much noise (quick up and down movement). In my experience you can get some good signals and make a trade on the overall direction of the move while analyzing the 5 minute chart.
During the first 5 to approximately 30 minutes you may just watch the market move up or down, not giving you a good signal. But once you do identify a proper signal, from the indicators you like to trade, then it can be a good move. As a side note, one of the great things about focusing on news releases is that they are scheduled in advance so you know exactly when you should schedule your trading hours.
Considering Stop Losses:
When trading the news, I commonly see many people place pending orders with tight stop losses. Then they find themselves in and out of the market in a few short minutes, or even seconds, having realized big losses. This happens because of the spreads widening. With a 10 pip stop loss and the spread widening to 12, for example, you would be in and out of the market as soon as your trade was hit. The best way is to trade with the direction of the trade, the way the market decides to go, and not try to guess which way it will go. The market moves, not so much in reaction to the exact data of the announcement, but by the reaction of the traders to the news itself, and the data’s alignment or lack thereof with what was expected.
A key thing to watch for is a quiet market in the hours pending the news release. In other words, the market is moving sideways. When this happens then the market is poised for a nice move.
Another observation that is certainly of key importance is to check the direction of the trend on the currency pair you are going to trade. To check the trend I use the 4 hour chart. I do a couple of things to help me better understand the trend. First, I put on the alligator indicator for a quick look at the strength of the trend.
If all three lines are pointing up in a 1 to 2 o’clock angle then it is an uptrend and If all three lines are pointing down in a 4 to 5 o’clock angle then it is an down trend.
Another way to get a general direction of the trend is to look at a 4 hour chart and draw a line from the point where your price bars start on the screen to where they end and get a direction that way.
You can also draw simple trend lines if you feel comfortable with trend lines. Once you have an idea of the direction of the trend, and depending on its relative strength, it may be wise to trade the news announcement in that same direction. In other words, if the market is trending strongly before the news announcement, you will be better off not fighting that trend.
When the trend is UP, on the 4 HR chart, and the news drives the market DOWN, after a drop in the price, watch for a turn in the price to the up side with a continuation of the direction of the trend. This would be referred to as a ‘whipsaw’ and is a very common market reaction to moves driven by the news. Don’t fall victim to the whipsaw, rather, wait for the market’s true reaction.
When the trend is down, on the 4 HR chart, and the news drives the market up. Watch for a turn to the down side with a continuation of the trend.
When the trend is up, on the 4 HR chart, and the news drives the market up, you can see a sharp move up with a period of rest and then a resuming of the trend.
When the trend is down, on the 4 HR chart, and the news drives the market down, you can see a sharp move down with a period of rest then a continuation down then a resuming of the trend.
Below is an example of a good trend and some of the areas where news went against the trend and then came back. You will also see places where the news went with the trend.
When trading the news don’t think of the market as an ATM machine that owes you instant cash, or a certain number of pips. When you buy there is always someone on the other end selling. So if 20 people show up to buy and there are only 10 lots for sell then someone will not be filled until some more lots show up. When the price gets good enough for the seller then you may buy, but it may not be at the price you would like.
Trading any strategy takes time and practice. You need to become good with your indicators and trust what they are telling you. If you trade the news right, you should be looking to grab a few pips from the middle of the move. Don’t reach for the tops and bottoms of the volatility caused by the news, as often you will be misled by doing so. Be patient with your analysis and try to trade with the previous trend of the currency. Trading the news is no simple task, but success can be had if you can avoid the greed of trying to capture the entire market move. Instead, wait out potential whipsaws, follow the trend, and be content to grab a small portion of the market’s move.
Thursday, March 12, 2009
Pivot Points Background
In recent years pivot points have become a very well known and widely used technical analysis tool. Key to understanding pivot point levels is the idea of support and resistance. Support and resistance levels give traders a visual gauge of pressure points within the market, specifically at certain price levels.
In Technical Analysis 1030 the following excerpt explains support and resistance levels as applied in the stock market; the same principles are also applicable to the currency market.
“A support level is a price level at which sufficient demand for a stock appears to hold a downtrend temporarily at least, and possibly reverse it. i.e., start prices moving up again. A resistance zone by the same token, is a price level at which sufficient supply of stock is forthcoming to stop, and possibly turn back, its uptrend. There is, theoretically, a certain amount of supply and a certain amount of demand at any given price level... But a support range represents a concentration of demand, and a resistance range represents a concentration of supply.”
The above was taken from TA 1030, a guest course in the University. Content for this course was taken from chapter 7 of Clif Droke's book Technical Analysis Simplified
Summary of Support & Resistance:
To summarize the above, support levels are considered levels at which price decline is continually rejected. Conversely, resistance levels are considered levels at which price increase is continually rejected. Traders looking at a support level and resistance level in conjunction with one another are essentially examining what is referred to as a channel. It is very common to see price trends within the bounds of trading channels; meaning that for hours, or perhaps days at a time, a currency may trade within the bounds of support and resistance levels. Many times throughout a trend the price may test either the support or resistance level, but ultimately if the price is to remain within the channel the support and resistance levels will be tested, but not pushed through.
Just the opposite of what is explained above, if a support or resistance level is tested for hours or days on end without a breakout, and finally the price does push through the bounds of this channel, it may be considered a strong indication that the price will take on an entirely new direction / trend.
Using Support & Resistance to Trade:
Traders watching support and resistance levels are generally looking for one of the following trading opportunities:
A chance to sell after a resistance level has been pushed, but not broken through several times. The trader’s entry would likely be at the end of a strong bearish candle that began with a touch of the resistance level.
A chance to buy after the support level has been pushed, but not broken through several times. The trader’s entry would likely be at the end of a strong bullish candle that began with a touch of the support level.
A chance to buy after a previously tested resistance level is finally pushed through with a strong bullish candle. In other words, buyers in the market have tried numerous times to push prices above a resistance level, yet have failed. Finally prices breakthrough in the form of a strong up-candle, indicating that perhaps, buyers will finally have their way and push the price higher.
A chance to sell after a previously tested support level is finally pushed through with a strong bearish candle. In other words, sellers in the market have tried numerous times to push prices below the support level, yet have failed. Finally prices breakthrough in the form of a strong down-candle, indicating that perhaps, sellers will finally have their way and push the price lower.
Understanding the Pivot Point Difference:
As is explained above, there are multiple scenarios in which a trader might utilize support and resistance levels as a means to indentify key entry and exit points. Pivot points are very similar to support and resistance levels, in fact, pivot points are simply a series of support and resistance levels, with the inclusion of a median price level. Standard pivot points include 5 levels (levels that are represented as distinct lines on your charts). The median level, or middle line of the 5, is called the ‘pivot point’. The other 4 levels are found above and below the pivot point in the form of 2 support lines (S1 and S2) and 2 resistance lines (R1 and R2).
Using the previous trading session’s open, high, low and close in order to calculate these pivot levels gives traders an added advantage beyond simply looking at one support level and one resistance level. Through the use of pivot points traders are able to gauge support and resistance levels on a scale in relation to an average price range (the pivot point or line itself) for the trading session.
As is the case with many forms of technical analysis, the actual math of pivot points in terms of its ability to predict price movement is certainly questionable. But, experienced traders understand that the science of the math is completely irrelevant. Rather, what does matter is that so many traders are utilizing pivot points as a means to gauge support and resistance levels. Always bear in mind the crucial importance of market sentiment; mathematically pivot points may or may not correlate with future price movement, but because pivot points are now very widely used by technical traders – their potential to impact price direction is certainly worth considering. Said another way, if millions of technical traders are all watching the same support and resistance levels and buying and selling in accordance with those levels; market sentiment can quickly become market reality. Pivot points may be as effective as they are at times simply because so many traders are basing trades on the same levels. Or, perhaps, there is magic found in these simple calculations.
Calculating Pivot Points:
Pivot point calculations are actually quite simple. Key figures are derived from the open, high, low and closing price of the previous day’s trading session. These figures should be based on trading days or sessions considered started and ended at 0:00 GMT (Greenwich Mean Time). GMT is used because of the global aspect of currency trading; with various markets (Australia, Asia, Europe, US) constantly opening and closing globally – a 24-hour-a-day market is created. GMT is used to mark the start and end of trading days because it is considered a globally central time.
The actual calculations for pivot points are outlined below, though please do not fret; these calculations are shown for your reference, but will not need to be mastered in order to utilize pivot points:
Pivot Point (PP): High + Low + Close / 3
The subsequent calculations for support and resistance levels are based on the number calculated for the pivot point itself and are as follows:
First Support (S1): (2 x PP) - High
Second Support (S2): PP - (High - Low)
First Resistance (R1): (2 x PP) - Low
Second Resistance (R2): PP + (High - Low)
As is the case with many technical analysis methods, strategies, and indicators – pivot points are far from an exact science. Though various trading methods were outlined above in the ‘using support and resistance levels to trade’ section, these methods are simply an outline of how a technical trader might use support and resistance or pivot points in their trading process. A seasoned trader would take into account other factors that will most certainly impact the market, a factor such as major fundamental indicators (news announcements). Pivot points may be completely irrelevant technically when trading right after a major fundamental news announcement. Traders should also consider other technical indicators, the overall trend of the currency pair, and the time frame of the chart they are analyzing pivots on in correlation with how long they plan to remain in an open position.
Typically, pivot points tend to work well if traders understand a few of the following tips, tips that might otherwise only be learned from rough experience.
Prices tend to volley between two pivot lines, in other words if a price is right at S1 it is most likely to move back toward PP, only a fairly strong bearish candle would indicate a further break and move towards S2. Just the same, if a price is at R1 it is most like to move back towards PP and only a strong bullish candle would indicate a move towards R2. When prices are trading at the pivot line itself, look for a strong series of bullish or bearish candles to indicate a move back towards R1 or S1.
Pivot points seem to work the best in moderately sideways markets, or on a currency pair that is not experiencing significantly strong bullish or bearish trend over the previous few days.
Prices within pivot points can move two or three lines at a time during major news announcements, or what is more likely; pivot points may be completely irrelevant during news announcements.
Wednesday, March 11, 2009
We all hear diversification is the best policy for an overall investment portfolio. This is also true amongst our currency focused investments as well. We must master the use of multiple trading strategies and multiple currency pairs to equalize our overall return. There are many traders that utilize trading strategies that when trading conditions are met are 80% accurate. However a full-time trader must utilize more than this single strategy as many times there are long periods of time when the trading conditions are not met, such intervals can last anywhere from a few days to several months. What good is a single strategy that can yield profits only half the year? Diversification is the answer. The key to making a living from your trading profits is to master several strategies that together yield consistent profits month after month.
Diversifying your investment is not the most popular of investment topics. In fact many people believe diversifying dilutes trading profits. But most investment professionals agree that while it does not guarantee against a loss, diversification is the most important component to helping you reach your long-term financial goals while minimizing your risk. But, remember that no matter how much diversification you do, it can never reduce risk down to zero.
A Well Defined Portfolio
What do you need to have a well diversified portfolio? There are 3 main aspects to ensure the best diversification:
(1) Your portfolio should be spread among many different trading strategies
(2) Your trades should vary in risk and time held. Picking different trade opportunities with different potential rates of return will ensure that large gains offset losses of other trades. Keep in mind that this doesn't mean blindly place trades all across the spectrum!
(3) Your currency pairs should vary by region and crosses, minimizing unsystematic risk to small groups of countries
Another question people always ask is how many currency pairs they should trade to reduce the risk of their portfolio. The portfolio theory for stocks tells us that after 10-12 diversified stocks you are very close to optimal diversification. However in the currency market this doesn't mean buying 12 currency pairs will give you optimal diversification, instead you need to trade currencies of different regions and importance levels (i.e. majors, crosses and more exotic currencies).
Good day and good forex trading!
Tuesday, March 10, 2009
The secret to successful investing trading is learning your own style, or in other words trading method(s) that work for you. There is no correct approach that everyone should learn. However, every trader needs to assess how much risk they can comfortably handle. It is the single most important investment issue for long-term success in the Forex market.
Are you able to stomach the risk when the markets are moving up or down as fast as your nervous heartbeat? Do you carefully consider the various risks that are associated with each trade you make? The fact is, many people either don't have a clue how or don't feel they need to protect themselves from unnecessary risk. In most cases they don't even understand all the types of risk their investing is exposed to. We will be reviewing the various types of risk and proper risk management to maximize your personal performance, including:
- What is risk?
- The different types of risk
- The risk/Return Balance
- Diversifying your trading
What is Risk?
Whether it is investing, driving, flying, swimming, or just walking down the street, everyone exposes themselves to risk. Your personality and lifestyle play a big role on how much risk you are comfortable with. For most investors, risk simply means "losing money." But if your investment choices leave you unable to sleep at night you are probably taking on too much risk.
The dictionary's definition of risk is "The variability of returns from an investment or the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is usually measured using the historical returns or average returns for a specific investment. The greater the variability of an investment (i.e. fluctuation in price or interest), the greater the risk."
The enhanced daily price movements and the leverage available in the Forex market compared to other financial instruments like stocks is the reason the Forex market is categorized as a "high risk investment vehicle". As investors are generally averse to risk, investments with greater inherent risk must promise higher expected yields to warrant taking on additional risk. Others add that higher risk means a greater opportunity for high returns or a higher potential for loss. However a higher potential for return doesn't always mean that it must have a higher degree of risk. This is why identifying and adhering to a strict trading strategy is so important to the overall performance. Learn more about use of proper money management to minimize your risk exposure. Do you have a hard time giving money back to the market when you feel that you have worked so hard for every penny of profit? If so, you would find yourself amongst the "risk adverse" category of investors. On the other hand, super active day traders feel most comfortable making dozens of trades per day and are considered "risk loving". When investing in currencies, stocks, bonds, commodities, futures or any investment instrument there is a lot more risk than most investors think. Learn more about the different types of risk that effect your Forex trading.
The Different Types of Risk
There are two basic classifications of risk: Systematic Risk - A risk that influences a large number of currency pairs. Examples of systematic risk are global political events, natural disasters, or war. Unsystematic Risk - Sometimes referred to as "specific risk". Its risk affects a very small number of currencies and currency pairs. An example is economic news that affects a specific country or region, such as a sudden strike by employees or a change in the Canadian interest rate. Diversification across multiple non-related currency pairs is the only way to truly protect yourself from unsystematic risk.
Now that we've determined the two main classifications of risk lets take a closer look at more specific types of risk.
Default Risk - This is the risk that the company with whom you have your Forex trading account will be unable to pay out an investor's account balance when a withdrawal request is submitted. Many Forex traders remember the incident of Refco in the fall of 2005. Unfortunately Refco, one of the world's largest investment firms with brokerage arms within commodities, futures and forex filed for bankruptcy protection and each of the brokerages were auctioned off to competitors or former subsidiaries. Their clients were unable to withdraw profits and initial capital until the brokerages were sold off. As of yet the dust has not settled and it is still too early to tell if all former customers received complete compensation. Choosing a suitable, stable broker is more than choosing the biggest.
Country Risk –This refers to the risk that a country won't be able to honor its financial commitments. When a country defaults it can harm the performance of all other financial instruments in that country as well as other countries it has relations with. Country risk applies to stocks, bonds, mutual funds, options, futures and most importantly the currency that is issued within a particular country. This type of risk is most often seen in emerging markets or countries that have a severe deficit.
Forex Risk – When investing in foreign currencies you must consider that the currency exchange rate fluctuations of closely linked countries can drastically move the price of the primary currency as well. For example, economic and political events directly tied to the British Pound (GBP) have an effect on the Euro's trading (i.e. the EUR/USD might have similar reaction as GBP/USD even though they are both separate currencies and are not in the same currency pair). Knowing what countries effect the currency pairs you trade is vital to your long-term success.
Interest Rate Risk - A rise or decline in interest rates during the term a trade is open will affect the amount of interest you might pay per day until the trade is closed. Open trades at rollover are assessed either an interest charge or interest gain depending upon the direction of the open trade and the interest rate levels of the corresponding countries. If you sell the currency with the higher interest rate you will be charged daily interest at the time of rollover based on your broker's rollover/interest policy. For more specifics on understanding your interest risk, please consult your broker for complete details of their policy including time of rollover, interest price (also called swap) and account requirements to receive interest paid to your account.
Political/Economic Risk - This represents the risk that a country's economic or political events will cause immediate and drastic changes in the currency prices associated with that country. Another example of this risk is government intervention that we typically see with Japan and the need to maintain low currency prices to bolster their exports.
Market Risk - This is the most familiar of the risks we have discussed, and according to some, really the main risk to consider. Market risk is the day to day fluctuations in a currency pair's price; also referred to as volatility. Volatility is not so much a cause but an effect of certain market forces. Volatility is a measure of risk because it refers to the behavior, or "temperament," of your investment rather than the reason for this behavior. Because market movement is the reason why people can make money, volatility is essential for returns, and the more unstable the currency pair the higher the chance it can go dramatically either way.
Technology Risk – This is a particular risk that many traders don't think much about. However, with the majority of individual Forex traders executing trades online, we are all technology reliant. Are you protected against technology failure? Do you have an alternative internet service? Do you have back-up computers that you could use if your primary trading computer crashes?
As you can see, there are several types of risk that a smart investor should consider and pay careful attention to in their trading. Deciding your potential return (target profit) while respecting risk is the age old decision that each investors must make
The Risk Reward Balance
The risk/return balance could easily be called the iron stomach test. Deciding what amount of risk you can take on while allowing yourself to walk away from your computer without worrying and to get sound rest at night while you have long-term trades open is a trader's foremost important decision. The risk/return balance is the balance a trader must decide on between the lowest possible risk for the highest possible return. Remember to keep in mind that low levels of uncertainty (low risk) are associated with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns. Trading is all about risk and probabilities. Understanding the inner functions of your trading strategy(s) and proper placement of entry and exit orders will assist in limiting your risk exposure while maximizing your profit potential.
What about how much of your account to place on each trade, or in other words the number of lots per trade? How much of your account have you lost in a single trade? Was it to much to swallow? If so you might not have utilized proper risk management and over leveraged your trade. Establishing the right level of leverage and corresponding margin requirements are a big part of managing risk. How are you doing?
There is Not One Correct Risk Level
Just as there is no single favorite food for everyone, there is no right risk level for everyone. Only you can determine what level of risk is right for you. You need to find the right balance between the amount of risk you are willing to take, and the amount of risk you can actually take. All too often investors think they are willing to take risk, but when it happens, they find out they aren't. Surviving in the market long-term is the most important way to make the market work for you. To do that, you need to learn your own risk tolerance ability. This could mean that you loose money during this learning process, but if this loss helps you achieve this level of understanding then you can financially afford the loss. This financial and emotional tuition is a valuable trading resource and something most experienced investors have paid through the process of trial and error.
Different individuals will have different tolerances for risk. Tolerance is not static, it will change along with your skills and knowledge. As you become more experienced tolerance to risk may increase as your strategies or systems of trading become more and more proven in your mind and wallet. But don't let this fool you into not adhering to and thinking about proper money management practices. Achieving the right median between risk and return will ensure that you achieve your financial goals while allowing you to get a good nights rest.
Monday, March 09, 2009
Last Weeks Major Financial Events
Last week was another down week in the markets. This bear market is moving fast lately. If it keeps this pace, in my opinion we might be at some major significant buy point price targets sooner than later, but as always I’ll just let the market and the charts tell me where it wants to go, then I’ll pass the info along here. Last week the USA unemployment rate hit records highs at 8.2%, and AIG got more bailout money from the Fed. If AIG didn’t get the cash infusion, maybe the whole world would be filing bankruptcy. I’m not suggesting the Feds reward bad companies, but there is a bigger picture going on here, and it the very survival on the world’s financial systems and economies. So for now, let’s hope, pray and encourage the Feds around to world to pump up the volume on their cash infusions for everyone’s financial rescue. The governments of the world may be the market of last resort.
This Weeks Major Financial Events
This week the UK Fed may be buying a big stake in Lloyds Bank to help them, and Madoff is supposed to be arraigned his alleged $50 billion financial fraud. Thursday March 12 could be very significant day for the markets as the House financial services subcommittee plans a hearing on mark-to-market accounting rules, which have been blamed for forcing banks to report billions of dollars in write-down losses. If that meeting results in the government relaxing mark-to-market rules, Option Monster Jon Najarian thinks the stock market could explode. I’m inclined to agree, at least for a short term pop.
Scanning The Stock Charts for Opportunities
Scanning the stock charts this Monday morning I’ve zeroed in on a two stock charts showing low-risk high-reward buy long positions. This could be a risky bet in this market, but implementing a tight stop-loss can make it a possible rewarding one also. The other stock pick that I’m not listing here is WGL Holdings energy utility. After hearing about someone on Friday taking big option call positions in Duke Energy and then WGL showing up on my stock scans I wanted to share this with you. I don’t recommend WGL this week because it looks like WGL still has some consolidation work to do. Longer term, WGL looks pretty good technically and fundamentally.
This Weeks Stock Pick
This week’s buy long stock pick of mine is a company involved in dare I say, the financial sector of the property and casualty insurance industry. This company is the smallest of its two major competitor peers, ACE Limited, and the Travelers Group. The short sellers have been talking trash about this company, and even with their February 20 Earnings announcement of record earnings of approximately $1.5 million, resulting in a 21% increase in their book value per share to $278.28, not including the $5 per share dividend paid in the first quarter of 2008, Fairfax stock price dropped from 280 to where it closed on Friday at 227.38.
Buy Long Fairfax Financial Holdings Limited: Ticker FFH
Buy Entry: 211.16 to 227.38
Stop-Loss: 211.00 or below.
Important Stop-Loss Note: If 211.00 gives way, a possible downside target is 143.44 to 150.49.
Take-Profit Areas: 238.76, 250.14 to 261.52, 337.96 to 362.78, 365.12 to 391.94, 432.38 to 464.13
Important Take Profit Note: In the current market conditions, stop-loss is highly recommened if going long on this weeks pick, and taking profit on the nearer upside price targets would also be a prudent strategy too. I’m not suggesting to buy and hold any stock just yet.
Fairfax Financial Company Profile
Fairfax Financial Holdings Limited (Fairfax) is a financial services holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management. The segments of Fairfax are Canadian Insurance, U.S. Insurance, Asian Insurance, Reinsurance, Runoff and others. During the year ended December 31, 2007, the Company completed the acquisition of Cunningham Lindsey. On April 3, 2007, the Company completed the sale of substantially all of the assets of Guild Underwriters Napa Inc. In September 2008, Fairfax completed a 58.51% stake in Advent Capital (Holdings) PLC. In November 2008, Ridley Corporation Ltd completed the sale of its 68.8% interest in Ridley Inc. to the Company.
Click here to review and Trial the Trading Software I used in determining my long position on FFH. Enter I2S in the "coupon code" field to receive the 5% discount.
Click the Fairfax Financial Holdings Stock Chart for a larger view.