Traders' Library Blog

Check Your Expectations!

I talk to prospective clients every week and one of the "red flags" I am on guard for is unrealistic expectations. Often I find the trader expects to turn his $2,000 account into a million dollars before the end of the year. Other traders have concluded from some of the marketing pitches that losses can be avoided entirely if you just know the "secrets" of adjustments.

Trading options can be very conservative or very aggressive. I am sure I could look back through recent history and develop some very attractive trades along the lines of, "If I had bought this call option just before Apple announced their earnings...". It wouldn't be hard to imagine scenarios where my thousands turn into hundreds of thousands. But is that realistic?

Why Do You Trade?

You may think that this is an obvious question. Certainly, we all trade to make money, but I am asking you to dig a little deeper. Why do you enjoy trading? Do you feel a sense of satisfaction when you have analyzed a particular stock and successfully predicted the market's response? Or is it more along the lines of being excited about making $5,000 in three days?

 

In my experience, better traders tend to approach their trading like a business - a coldly analytical business. They certainly savor their successes, but they aren't adrenaline junkies - they are serious business people.  If a deeper self-analysis reveals that you are trading for the excitement, watch out! That could be dangerous.

 

The Deception Of Large Gains

 

Do you understand the natural characteristics of your strategy? If your favorite trade is an OTM debit spread that has a potential gain of 300%, you should recognize the probabilities underlying this trade. This is an example of the classic low probability trade; you may only win one out of ten trades, but when it hits, it is huge. So the long-term pattern of results consists of frequent, small losses punctuated by occasional large gains.

The classic high probability trade has the opposite pattern: frequent small gains with occasional large losses. Neither trade is superior and neither trade will be profitable in the long-term without a robust system of risk management.

Often beginning traders are seduced by the prospects of several hundred percent gains but don't appreciate the low probabilities of success associated with this trade.

Neither trade is superior but the trader's expectations need to be grounded in the underlying probabilities.

Stocata S&P500 Technical Analysis: May 12, 2012.

Last week I wrote: "Because the stop loss just above the top 3.4 was not reached, we still have the short position open. Last Thursday the index fell again under the 8 day exponential average ready to continue the move down. All indicators are moving down and we have a confirmed wave 3 down, (more on my new 123 wave count system HERE). My expert system SVEPRExp turned red. The first target now is the 100 day average around 1340".

Reaching a low of 1343, we came very close to our mentioned target of 1340 the previous week. We have a new valid wave 3.1 down (more on my new 123 wave count system HERE). All indicators are moving down. There is support from the 100 day moving average and from the previous low of a wave 2. For next week there may be some up correction, but the trend is down! My swing trading system is in a down move (more info about my STS8 Swing Trading System HERE).

The total closed profit trading the index is 76.5% from the start in March 2009. We have a valid 123-wave, wave 3 down. We have to consider that it is not impossible that we started a long term down move. My SVEPRExp expert system turned black, we have an open short position. Since not all conditions to close this short trade the previous week, the short position is still open and now confirmed by the expert system.

Stocata FOREX Update EUR/USD: May 12, 2012.

Last week I wrote: "With 160 pips down the past week, our expectation is fulfilled. We reached the 261.8% Fibonacci target in the hourly chart. We are now below all averages. We have a confirmed wave 3 down and we are moving towards the median line of a down moving pitchfork. All indicators are moving down. On Wednesday all STS8 rules were in favor of opening a short position which we already did based on the hourly chart last week. We can expect a further move down, probably after a short reaction in the hourly char

As expected we had an up reaction on Monday as predicted by the hourly chart but the rest of the week there was a continuation of the down move. Indicators are oversold, so I do expect some consolidation, but the trend is down. The expert is black for a short position, a continuation that was already announced 2 weeks ago by the hourly chart.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is black. But as written two weeks ago "in view of all resistance I keep the open short position for now", we are still holding the short position now confirmed on the daily chart. More information about this expert system HERE and HERE.

Your Free Monthly Video has been added!

Your Free Monthly Video has been added!

 
This month's free streaming video is Disciplined Trading: How to Trade Your Way to Financial Freedom with Van Tharp. It will only be in your account for the month of May so don't forget to log-in and watch!

You will learn:

• The importance of position sizing, and what it means to you
• What responsibility is and why it is so important to day trading
• Which emotions are most dangerous and how to manage them
• Van Tharp's personal plan for trading that has brought him success

 

Go to your account now--all you have to do is:

1. Log in

2. Click on My Online Library

If you do not already have an account, it is easy to get started. Just Click Here.

Denver Trading Forum--Bonus Session Added

Don’t miss the Denver Trading Forum next week!  We just added a bonus session on Friday night—it is a must attend.

Friday, May 18, 2012 7:00 pm – 8:30 pm

Straight Answers on Trading

This panel discussion is a trader’s dream opportunity to ask specific
questions to the presenters and get your answers. Get the behind the curtain
access to the gurus and up to the minute feedback on how they are trading. We
will be taking questions via email prior to the event to make sure we can answer
as many as possible in addition to getting you answers to any questions that you
bring to the Forum.

If you have ever left an event with a question that didn’t get addressed,
this is your chance to make sure you get great, actionable answers from these
industry leaders.

Check the FULL SCHEDULE now!

Trading Week Outlook: May 7 - May 11

May 6, 2012 (Allthingsforex.com) – As a result of an economic calendar light on crucial economic data from both sides of the Atlantic, we expect risk to be the dominant driver for the markets and the major currencies in the week ahead.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe. 

1.    EUR- Elections in France and Greece, Sun., May 6, all day event. 

Political uncertainty would be likely to cause market jitters and should keep the pressure on the single currency. Current polls suggest the potential for a fractional government in Greece which could create instability and might force another election within the next month or two, adding to the uncertainty about the future of the debt-ridden nation and its commitment to follow the requirements of its second bailout package.

2.    CHF- Swiss CPI- Consumer Price Index, Mon., May 7, 3:15 am, ET.

We expect the Swiss inflation report to demonstrate that despite of the recent month over month increase in the inflation gauge, deflation continues to be an issue for the Swiss economy, increasing the odds of the need for additional action by the Swiss National Bank to weaken the franc. The consumer price index is forecast to inch higher by a smaller 0.2% m/m in April after rising by 0.6% m/m in March.

3.    JPY- Current Account Balance, Wed., May 9, 7:50 pm, ET.

In January, Japan registered its biggest monthly current account deficit since 1985 with a shortfall of 437 billion yen. The account surplus has been a backbone of yen strength throughout the past few decades. Because of the surplus Japan does not need to rely on foreign purchases of government bonds. However, following the January report, investors began to question the country’s ability to handle an already massive amount of debt which exceeds 200% of GDP. Japan is forecast to ring a smaller current account of about 1.44 trillion yen in March compared with 1.17 trillion in the previous month.

4.    AUD- Australia Labor Force Survey, Wed., May 9, 9:30 pm, ET. 

Watching the Market...

Steve Palmquist.

Author of ‘The Timely Trades Letter’.    

‘How to Take Money from the Markets’,  

and   Money-Making Candlestick Patterns.

 

When the market is resting, like it did last week, I set up the alerts function that my broker provides to text my iPhone when the market moves either above or below the resting area. When I get the text message I look at the market to see if trading is warranted. In this case I was notified when the market made a move on Friday. I looked at the market chart on my iPhone, determined that no swing trades were warranted, because I was focused on longs and the market had moved down a bit. This process takes just a few minutes and can be done from almost anywhere; or with a brief break, in most any job. New traders often make this too hard, they want to watch the market all day, afraid they will miss something. Sending the alerts to a cell phone, for both stock triggers and key market levels, allows traders to work on other things and just take a look at the market when something interesting happens. If I am too busy to get to the computer I do not worry about it; any decent move does not require you to be in on the first day, almost by definition. All of my backtesting research for the trading tools I use, and the ones published in my books was done using end of day data; trades were entered at the open the day after the trigger. Again, this illustrates that one does not need to watch the market all day. In fact, it seems that the more people watch the market the worse they do. They start making emotional decisions rather than data based decisions. I am trading patterns in market environments in which they have demonstrated interesting results. There is no emotion in trading a pattern, it is either there or it is not. The stock has either moved above the trigger price, or it has not. The market is either in an appropriate environment for trading or it is not. 

 

Trading should be data driven, not based on emotion, wishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. I have extensively tested several trading systems, the results of this testing on specific trading trading tools are outlined in  ‘How to Take Money from the Markets’, and  Money-Making Candlestick Patterns. The testing process helps us understand how stocks usually behave after forming a specific pattern such as being outside the Bollinger Bands, showing strong distribution or accumulation, or pulling back or retracing during a trend. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks. 

 

 

 

 

Stocata S&P500 Technical Analysis: May 5, 2012.

Last week I wrote: "We complied with the STS8 rules for opening a short position two weeks ago and we still are complying now (more info about my STS8 Swing Trading System HERE)".

Unfortunately I mixed up charts last week, using the chart of the week before, also writing the comments! I make a new start this week.

Because the stop loss just above the top 3.4 was not reached, we still have the short position open. Last Thursday the index fell again under the 8 day exponential average ready to continue the move down. All indicators are moving down and we have a confirmed wave 3 down, (more on my new 123 wave count system HERE). My expert system SVEPRExp turned red. The first target now is the 100 day average around 1340.

The total closed profit trading the index is 76.5% from the start in March 2009.

We have a valid 123-wave for a new wave 3 down. We have to consider that it is not impossible that we are starting a long term down move. My SVEPRExp expert system turned red again, we have an open short position. Since not all conditions to close this short trade were met the previous week, the short position is still open.

Stocata FOREX Update EUR/USD: May 5, 2012.

Last week I wrote: "The Euro went down to the level of the low side of the up moving pitchfork on the weekly chart, but closes above the high side of the down moving pitchfork on the daily chart. We are close to a previous resistance and the down moving 200 day average. The hourly chart complies with the 8 STS8 rules for selling. The Euro may still reach the 200 day average, but I do expect lower Euro prices next week.".

With 160 pips down the past week, our expectation is fulfilled. We reached the 261.8% Fibonacci target in the hourly chart. We are now below all averages. We have a confirmed wave 3 down and we are moving towards the median line of a down moving pitchfork. All indicators are moving down. On Wednesday all STS8 rules were in favor of opening a short position which we already did based on the hourly chart last week. We can expect a further move down, probably after a short reaction in the hourly chart.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is green. But as written last week "in view of all resistance I keep the open short position for now", we are still holding the short position. More information about this expert system HERE and HERE.

Check out our new selection of Online Videos on Sale Now!

With more products transitioning to digital formats, Traders’ Library is becoming a key venue for traders to access and store their educational information.  We are excited to introduce these brand-new online videos from some the biggest names in the trading world:

• Introduction to Profiting from Candlesticks for Options by Steve Nison 
• The Holy Grail of Trading: Spot Profit with Opening Range Breakouts with Jeff Cooper
• Ten Things Traders Should NEVER Do with Jake Bernstein
• Daily Trading Profit: Market Profile-Based Trading Methods with Michael Jardine
• Profiting from Volatility: Cashing in on Modern Markets with Richard Lehman
• Opening Range Profit: Consistent Swing Trading Success with Michele and Keith Schneider 
• Controlling Fear and Greed: How to Reach Your Trading Goals with Fausto Pugliese
• And more…

These programs are viewed INSTANLY on the web. That means you can immediately discover all the exciting, easy to use details on every strategy and how they work, and implement it on your next day of trading!

No waiting for DVDs to arrive days later in the mail!

Check out our full list of online videos here.

Trading Week Outlook: Apr. 30 - May 4

Apr. 28, 2012 (Allthingsforex.com) – With the Fed reminding the markets that the option of more bond buying is still “very much on the table”, in the week ahead traders will continue to gauge QE3 odds, while keeping an eye on the euro and the next move by the European Central Bank, as a sequence of important economic data from the Euro-zone and the U.S. culminates with the ECB interest rate announcement and the U.S. Non-Farm Payrolls report. 

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe. 

1.    EUR- Euro-zone Flash HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Mon., Apr. 30, 5:00 am, ET. 

With inflationary pressures forecast to subside to 2.5% y/y from 2.6% y/y, policy makers at the European Central Bank should feel comfortable enough to focus on stimulating growth and to consider additional easing.

2.    USD- U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Mon., Apr. 30, 8:30 am, ET.

Consumer spending is forecast to increase for another month, but at a slower pace by 0.4% m/m in March from 0.8% m/m in February, while the Fed’s preferred core PCE Index inches higher by 0.2% m/m in March compared with 0.1% m/m in the previous month.   

3.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., May 1, 12:30 am, ET.

Stocata S&P500 Technical Analysis: April 28, 2012.

The NEW chart template (April 7 2012) and trading rules are mentioned HERE. Last week I wrote: "Closing some 7 points higher, but below the 8 day exponential and 50 day simple average, basically confirming the downtrend. In the hourly chart we first bounced against the 100 and 200 average and now again against the 100 average and the R1 monthly pivot. I do expect a continuation of the move down in search of the correction wave 2".

Tuesday brought us back up to the resistance of the PP pivot point, the 50% retracement of the last move down and previous support now becoming resistance. With the index now closing below the 8 day exponential average and the 50 day average and the hourly chart bouncing against the 100 hour average, I am still expecting the continuation of the wave 2 down (more on my new 123 wave count system HERE). We complied with the STS8 rules for opening a short position two weeks ago and we still are complying now (more info about my STS8 Swing Trading System HERE).

The total closed profit trading the index is 76.5% from the start in March 2009.We have a valid 123-wave 3.4. We have to consider that it is not impossible that we are starting the long term wave down. My SVEPRExp expert system turned green, we have an open short position. Since not all conditions to close this short trade were met last week, the short position is still open.

Now available! My Band Break System DVD "Band Indicators".

Comments on weekly and Monthly chart.

Stocata FOREX Update EUR/USD: April 28, 2012.

Last week I wrote: "The down move was limited to the low on Monday finishing already the wave 3 down. The rest of the week the Euro moved up for a correction wave 2 (much more than the move up in the S&P500). Now finding resistance at the 50 day average, the upper side of the down moving pitchfork (moving in line with the 200 average) and the monthly pivot PP. Looking at resistance and the hourly chart I believe we will start the new week with a move down".

The Euro went down to the level of the low side of the up moving pitchfork on the weekly chart, but closes above the high side of the down moving pitchfork on the daily chart. We are close to a previous resistance and the down moving 200 day average. The hourly chart complies with the 8 STS8 rules for selling. The Euro may still reach the 200 day average, but I do expect lower Euro prices next week.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert is green. In view of all resistance I keep the open short position for now.

Trading Week Outlook: Apr. 23 - Apr. 27

Apr. 21, 2012 (Allthingsforex.com) – The busy week ahead could prove pivotal for the future direction of the stock market and the U.S. dollar as all eyes turn to the FOMC meeting and the U.S. Q1 2012 GDP estimate in search for clarity on the Fed’s monetary policy and on the state of the world’s largest economy.  

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe. 

1.    EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Indexes, two leading indicators of economic conditions measuring activity in the manufacturing and services sectors, Mon., Apr. 23, 4:00 am, ET. 

Despite of the anticipated improvement, both indexes are forecast to stay below 50, in contraction territory for another month, with a manufacturing index reading of 48.2 from 47.7 and a services index reading of 49.4 from 49.2.

2.    AUD- CPI- Consumer Price Index, the main measure of inflation preferred by the Reserve Bank of Australia, Mon., Apr. 23, 9:30 pm, ET.

Inflationary pressures in Australia are forecast to rise by 0.8% q/q in the first quarter of 2012, compared with the flat 0% reading in Q4 2011. Elevated inflation could keep the Australian dollar supported on reduced odds of another rate cut by the Reserve Bank of Australia.    

Stocata S&P500 Technical Analysis: April 21, 2012.

Last week I wrote: "Hope you kept that eye on your long positions. As expected, we had a first move down to 1357, living up Wednesday and Thursday to the monthly pivot point, previous support and a 50% retracement level, but back down again on Friday closing at 1370 back below the 50 day average. I expect a further down move to first targets 1340-1320".

Closing some 7 points higher, but below the 8 day exponential and 50 day simple average, basically confirming the downtrend. In the hourly chart we first bounced against the 100 and 200 average and now again against the 100 average and the R1 monthly pivot. I do expect a continuation of the move down in search of the correction wave 2. 

The total closed profit trading the index is 76.5% from the start in March 2009. We have a valid 123-wave 3.4. More on this wave count method soon! We have to consider that it is not impossible that we are starting the long term wave down.

My SVEPRExp expert system turned green, we have an open short position. Since not all conditions to close this short trade are met, I keep the short position open.

Stocata FOREX Update EUR/USD: April 21, 2012.

Last week I wrote: "We got the correction back to the 50 day average and the upper side of the down moving pitchfork, but Friday brought us back in the down move ending the week with a lower close. I do expect a continuation of the move down to form the wave 3 down".

The down move was limited to the low on Monday finishing already the wave 3 down. The rest of the week the Euro moved up for a correction wave 2 (much more than the move up in the S&P500). Now finding resistance at the 50 day average, the upper side of the down moving pitchfork (moving in line with the 200 average) and the monthly pivot PP. Looking at resistance and the hourly chart I believe we will start the new week with a move down.

We have to consider the possibility that the top in May 2011 was a long term top and that we started the long term wave down since then. If that is the case there will only be limited up correction moves during the long term down move. My SVEPRExp expert turned green on Friday. In view of all resistance I keep the open short position for now. I will publish more information about this expert system soon.

Free Candlestick Webinar Next Week

High Profit Trades found with Candlestick Breakout Patterns

Who: Steve Bigalow
What: FREE Exclusive Webinar
When: Thursday, April 26, 2012 at 4:30 PM EST
Where: Click Here to Register

As an active trader for over 27 years, Stephen Bigalow has learned to trust the consistency of technical analysis with Candlestick Signals. In this live webinar, he will share with you the best Candlestick Signals to identify breakout patterns with the highest potential for big profits. You'll clearly 'see' when it's time to get into a trade on a dramatic price move outside of its normal trading range.

Everyone wishes they got into that fast moving stock that jumped up $25 in a month.

Candlestick Signals not only identify these potential movers -- they help you identify if there is still time to participate in the move!

In this live webinar Steve will show you:

• Which signals produce the Breakout Patterns
• How to perform a quick visual analysis for entry and exit points
• The tell-tale signals that investor sentiment may soon change
• How to stop buying at the top and selling at the bottom

Join Stephen Bigalow as he shares the ease and effectiveness of using Candlestick Signals. Both experienced, and novice investors, will appreciate how easy these are to add to current strategies, allowing for more profitable trades!

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DOM Bearish Gartley Pattern

A Bearish Gartley Pattern recently completed on Dominos Pizza & IRL Plc (DOM on LSE.) The trade setup was identified in the March 26, 2012 issue of The Geometric Trader - Global Equities Report. The report stated that the setup was complete and to sell on a stop one tick below the low of the high bar.

The next day the order was filled and then DOM quickly moved to hit our first two profit targets.

As seen above, the trade worked. Our favorite method of managing a trade like this is with the Single In/Scale Out method of money management as described in the book The Gartley Trading Method: New Techniques to Profit From the Market's Most Powerful Formation. To learn about this effective trade management technique, click here to watch an instructional video. To identify Gartley Patterns before they complete, check out The Geometric Trader - Global Equities Report at www.geometrictrading.com

 

 

Data Driven Trading...

Steve Palmquist.

Author of ‘The Timely Trades Letter’.    

‘How to Take Money from the Markets’,  

and   Money-Making Candlestick Patterns.

 

Many traders use indicators to determine when to enter and exit trades. Most charting software includes dozens of different indicators that can be displayed on the charts. Popular indicators such as the Stochastic, and MACD, are frequently discussed when traders get together. I have listened to a number of these discussions, the interesting thing is that people typically explain why they use a particular indicator by citing an number of examples of when it has worked for them. When they do, another trader will typically say something like, ‘well it did not work for me, so I use the XYZ indicator which is much more reliable’. When I ask the second trader why his XYZ indicator is more reliable, the explanation usually involves a few more examples of good trades.  

 

Examples do not prove anything. It is possible to flip a coin and have it come up heads five times in a row. Few traders would observe this and then think that when you flip a coin it always comes up heads. Yet for some reason people will read an article about an indicator that shows four or five examples of good trades it produced, and then they will go and risk their money trading the technique. They typically trade the new technique until it produces several losses in a row, and then they start looking for another article, that describes a ‘better’ technique, and the process repeats itself in an endless search for a better trading system.

 

Trading should be data driven, not based on emotion, wishful thinking, or hot tips from TV hosts. To be data driven one needs to test and analyze trading tools and find out what really works, and when each tool should be used. Traders must understand which tool to use for a specific task, and have a clear understanding of how the tool works, and what can and cannot be done with it. Traders need to extensively test several trading systems, and based on the results of that testing they develop a toolbox of different trading techniques that have shown effective results. They are not trading based on hunches they are using data driven techniques to defelop effective trading tools and understand the specific market environments in which they work. Data driven traders first check the current market conditions, and then pull out the tools that have shown interesting test results in those market environments. The testing process helps traders understand how stocks usually behave after forming a specific pattern. Understanding what a stock is most likely to do forms the beginning of a trading strategy. Trading without this information is taking unknown risks. 

 

 

 

Stocata S&P500 Technical Analysis: April 14, 2012.

Last week I wrote: "The index made a last(?) move up on Monday but closed the week lower on Thursday as expected (market was closed on Friday). The S&P500 future went 20 points down on Friday. This will probably make a lower start next week. Looking at my new template trading rules STS8, all rules for closing a trade are complied with. Keep a close eye on your long positions! I do expect a lower index next week".

Hope you kept that eye on your long positions. As expected, we had a first move down to 1357, living up Wednesday and Thursday to the monthly pivot point, previous support and a 50% retracement level, but back down again on Friday closing at 1370 back below the 50 day average. I expect a further down move to first targets 1340-1320.

I opened a short position at 1371. The total closed profit trading the index is 76.5% from the start in March 2009. We have a valid 123-wave 3.4. More on this wave count method soon! We have to consider that it is not impossible that we are starting the long term wave down.