Trading GBP/JPY

Some time ago I wrote about GBP/JPY. Today I received the following eMail:

i really like the way you descibe gbp/jpy in the blog globetrader and i really want to learn more about gbp/jpy market as the way u seen it or trade it...do u have any system,e book,or whatever that can enrich my knowledge on this gbp/jpy market.. i only trade on gbp/jpy but only a small trader and plan to increase lot by few months.

The system, the things I look at in trading can be found in my blog. Sometimes I rearrange them, put things together in a different way, but they are all there. I’m trading for some time now and the longer you trade the more you will find that there is nothing new. Just ways to look at things this or that way.

Sure not every market is the same. Some markets move slowly like a big river, others move fast, but still predictable and then there are markets which are just too fast to trade, which have swings you can’t survive in the long run.

GBP/JPY is called the widow maker…and for a reason

I hope you have learned already that there are major pairs in Forex trading and then there is the rest. Some pairs of this rest are still traded very active, but with the exception of a few days and weeks they are at the mercy of the majors. The 6 (eventually 7) majors are all traded against the US-Dollar and they are EUR/USD, JPY/USD, GBP/USD followed by USD/CHF, USD/CAD, AUD/USD and the last NZD/USD. You might add the Renminbi, but as the Chinese currency is not free floating, it’s not(yet) in the list.

EUR/JPY is the major cross-currency followed by a big gap and then the GBP/JPY and the EUR/GBP, followed by the other former carry-trade currencies (AUD/JPY CAD/JPY and NZD/JPY). Other cross-currencies I would just not look at, as they are not actively traded.

What is the difference between a cross-currency and one of the majors? Why do I have to concern myself with the GBP/USD market if I want to trade the GBP/JPY market (or the USD/JPY market)

Unlike other markets the FX market is interconnected. There are no imbalances. Every cross-rate can be expressed by looking at each of the two against a third currency. And guess, what that third currency is? The US-Dollar as the most liquid currency in the world.

Assume you are a big player being in need of Japanese Yen and what you have is British Pound. You go ahead and trade British Pound against the Yen? I wouldn’t guess so! You would crush the market, actually you wouldn’t but only because all other big players would compensate for your folly and let you pay for it. You not being dumb will avoid that folly and you will first trade your GBP against the USD, which might move the market by a few ticks but nothing major and then you will trade the USD against the Yen, which will result in nearly no movement at all as the USD/JPY market is extremely liquid and as big as your trade might seem, it’s just a small one compared to the daily total trade volume in the USD/JPY market.

But your trade will still influence the GBP/JPY market as the GBP/JPY exchange rate will not be found by market forces of Buyers looking for Sellers or vice versa. The GBP/JPY exchange rate is found by doing the following calculation: GBP/JPY = GBP/USD * USD/JPY

And if there is any deviation at all from that mathematical result (maybe caused by market orders which bring the GBP/JPY market out of line) then arbitrage programs will make sure, that the GBP/JPY exchange rate will be back at the mathematical correct value in no time at all. Any deviation from that value is riskfree money. A deviation from the correct value of 0.0001 times 10.000.000.000 is a huge amount of money, which arbitrage can give you absolutely riskfree. So if you want to trade GBP/JPY you actually are trading 2 markets: The GBP/USD market and the USD/JPY market.

If you can do that and if you can read both of these markets without a problem, then go ahead and give yourself the new challenge of trading the GBP/JPY market. But if you are new or just not as experienced, then I would suggest you first master the USD/JPY and the GBP/USD markets before you take a look at the GBP/JPY market. Yes you can make fantastic profits in that market, but can you survive 50 to 100 pip moves against you, which are just a wiggle in the longer trend? Will you be able to use adequate Stops in that market? Are you prepared for the spike in GBP/JPY if GBP/USD trades up to 1.4710 while USD/JPY trades at 90.60 and can you tell me without a second thought what direction the spike in GBP/JPY will have, when GBP/USD and USD/JPY both retrace, when GBP/USD retraces back to support at 1.4660 while USD/JPY remains in the 90.50 to 90.70 range. Do you know what Stop to use, when you are long GBP/JPY at 133.25 in that scenario?

Do your account a favor and master the major pairs first. GBP/JPY will still be there, when you are ready to trade it.

EUR/GBP parity

Any chance at all for P A R I T Y. Not within a day. Expiration games carry only so far and December 19th went without a spike for parity, instead we saw a pull-back. But there is renewed talk in the media calling for parity and the pound joining the ECU. It will take some time, but parity is sure in the cards now.

Take a look at this parabolic move:

Is the Euro really that strong? Isn't the EU in as big a mess as the US. Obviously not, at least if you look at the exchange rate. My article on November 25th  was prophetic. But I did not expect such stellar returns. I'm just glad I followed my own advice at least that much, that I converted my account to Euro, when the Euro broke 1.31. I did not hold additional futures, but at least I did not lose on the US-Dollar depreciation.

But when will it stop?

Markets can remain irrational a lot longer than your account can survive. Still there is strong resistance 200 pips ahead from that top made in the down move. And I expect the Euro to stop and retrace from there down to at least 1.40, which would form a very clear inverse Head and Shoulder pattern on the daily and the weekly chart, something not seen very often.

At the same time the Euro/GBP exchange rate is on the move. London isn't at all unhappy about the weak pound to help it's ailing economy. Add to that, that it might economically be in the interest of the UK to join the ECU and a move to parity wouldn't be such a bad thing to convince our British neighbors to join the ECU.

Just 570 pips to go.

1x1 of ETF trading

ETF is not ETF.

There are regular ETF's. These move in value comparable to the underlying index. A prominent example are the Spiders (SPI) or the Diamonds (DIA) which mirror movements in the S&P500 and Dow Jones index. So 1 point up in the S&P is a 0.1 point up in the spiders. No problems here. You may stop reading, if you trade just these. This article does not apply to these regular ETF's. Just make sure you have just these regular ETF's in your portfolio.

But there is a new kind of ETF's. These ETF's move the same percentage as the underlying index. Meaning if the underlying index moves 5% up, then the ETF also moves 5% up. If it's 5% down in the index, then these ETF's move 5% down as well. There is also a very hip breed of these percentage based ETF's, which give you double or triple the percentage move of the underlying index.

These percentage based ETF's show certain characteristics, which makes them great trading vehicles for short term swing trading, but make them very dangerous for investment strategies.

Let's look at a few examples to show my point:

You are long 200 DDM (Dow30 Ultra 2x long) ETF at 30.00.

Now consider two alternate scenarios:

1. Monday the Dow rises 5%, Tuesday up another 3%, Wednesday up 0.35%, Thursday up 2%, Friday up another 2%

or

2. Monday the Dow rises 2%, Tuesday up another 5%, Wednesday down 3%, Thursday up 5%, Friday up another 3.35%

Can you tell me which scenario your account likes better?

Lets look at another example:

1. Monday the Dow rises 10%, Tuesday up 0.5%, Wednesday up 0.5%, Thursday up 0.5%, Friday up 0.5%

or

2. Monday the Dow rises 2.4%, Tuesday up 2.4%, Wednesday up 2.4%, Thursday up 2.4%, Friday up another 2.4%

Or can you tell me how it is possible that a Long ETF and a Short ETF both starting at 50 when they start public trading, today trade both below 50, even if they both move the same percentage points?

EG: Long +10% is mirrored by the Short -10% and it is every day the same, still you can have both ETF's trading below 50. Is it all a sinister fraud a conspiracy to get your money? Or is it something different?

(First you have to remember, that a Ultra 2x ETF will move twice the percentage points the market made

Long DDM	30.00	1. Alt	Price	2.Alt	Price
Monday		10%	33.00	4%	31.20
Tuesday		6%	34.98	10%	34.32
Wednesday		0.7%	35.22	-6%	32.26
Thursday		4%	36.63	10%	35.49
Friday		4%	38.10	6.7%	37.86
200 Long			7620.00		7572.90
Paid			6000.00		6000.00
Profit			1620.00		1572.00

Interesting what that one down day made to your total profits, even if the percentages in both scenarios added up to 24.7% up.

Let's look at the second example:

Long DDM	30.00	1. Alt	Price	2.Alt	Price
Monday		20%	36.00	4.8%	31.44
Tuesday		1%	36.36	4.8%	32.95
Wednesday		1%	36.72	4.8%	34.53
Thursday		1%	37.09	4.8%	36.19
Friday		1%	37.46	4.8%	37.93
200 Long			7492.00		7586.00
Paid			6000.00		6000.00
Profit			1492.00		1586.00

 

Both percentages add up to 24% upmove, but in the first scenario we had a big upswing and then consolidation with an upward bias, while the second scenario was a typical rising market, nothing spectacular just relentless upward. The percentages add up to the same amount, still the results are different.

As far as I can see at the moment, ETF's are great for trading, but you don't hold them and forget them. Especially when you do some calculations to find the answer to my third question.

Why can 2 ETF's, which are supposed to mirror each other starting from the same price at 50.00 both trade below 50 after a while?

Meaning, if you invest 100 in the ETF long and 100 in the ETF short, your net should remain 0 after 1 or 2 or 10 years. But that is not the case and I hope you have an explanation as the answer might result in the decision to go short the Short ETF, when you intend to go actually long or Short the Long ETF, when you want to short.

That way you would trade the fund side of the ETF investment game and no longer the investor side. Investors buy either long or short ETF's, the Fund sells them and is therefore always Short.

Let's look at an example I just made up to show my point:

Assume you have a long and a short ETF and both started trading on 1.1.08 at 50.00.

We had a bit of a buying spree at the beginning of the year, reality setting in after 3 days and the market retracing over the next trading days, then just regular market madness, nothing spectacular, nothing you wouldn't expect from today's trading ranges. My example shows a regular and an Ultra 2x ETF. As you see, the Ultra results are just more pronounced.

Now within just 17 trading days an investment in 100 shares (10,000$) each of the Long and Short ETF is down 231$, in case of the Ultra you are down 902$. If you have 2 accounts and in one account you go long 100 shares of the Diamonds and in the other you go short the Diamonds. What is your net after 17 days, assuming an initial investment of 10,000$. Sure it's 10,000$, any gains in one account will cover the losses in the other account.

With ETF's it's different. Sure you get the expected result, if you go long 100 Long ETF in one account and short 100 Long ETF in another, but that's not how it is sold to the public.

The public goes long the Long ETF, if they think the market will go up and it goes long the Short ETF if they assume the market will go down ultimately.

Btw: The results are nothing sinister, no conspiracy, just the way ETF's are setup to trade. They mirror percentage moves and that means ETF's will always fall faster than they go up. And the higher the leverage, the more extreme the results.

50 -10% = 45.00
45 +10% = 49.50

Who is gaining? Well the Fund companies selling these ETF's of course. They are short the ETF's you go long and if you are down 1000$, they are up these 1000$.

But can't they lose? Sure they can. But in the long run statistics make sure, that any ETF will be likely to fall below the price the fund opened trading.

DUG is the Ultra Short 2x Oil & Gas ETF and you would assume that contract should be trading above it's highs

DUG started trading at 69 in February 2007.

Despite the huge downward move in the Crude Oil price reflected in the Long Ultra Oil & Gas ETF (DIG) The corresponding Short ETF (DUG) is down. An investment of 100 shares in both the long and short ETF at the start of trading in February 2007:

100 DIG at 60 = 6000$

100 DUG at 68 = 6800$

Total 12800$

Today's value:

100 DIG at 27.35 = 2735$ Down 3265$

100 DUG at 32.99 = 3299$ Down 2701$

In other words, Going Short 100 DIG in February 2007 and going Short 100 DUG in February by selling you your position in the Proshares Fund has made the ProFunds Distributors, Inc. 6834$ (excluding commissions).

6834$ on an 12800$ investment in 1 and 1/2 years.
That's a 53.4% return on investment. Not bad, really not bad at all.

So shall you go Short the Short ETF, when you think the market is going up and Short the Long ETF, when you think the market is going down? The results point in that direction, especially if you intend to hold your ETF's for the long run.

ETF's favor the Fund company, if the market moves against the ETF (meaning the market is going down and you hold a Long ETF. Just look at these beaten down ETF's I have told you in recent articles about: DXO, UYG or URE). But they have great leverage and they will bring you good profits if you swingtrade them. Actually if you trade futures and you want to expand your trading into swingtrading, ETF's are a great way to do it. You are used to watching your positions like a hawk. You are used to fast adverse movements, which require instant action and you are not likely to panic in case the market is not doing what you expect the market to do.

Just know that the odd's in ETF trading favor the short side, that any long gains are most likely temporary, and even when an ETF trades 100% above it's initial open price, don't expect these gains to hold. Adverse percentage moves will make sure, that these ETF's can fall extremely fast and hard. A lot faster than stocks will fall.

DXO - a 2 x Ultra Crude Oil ETF

I received this question regarding my last article:

Looking at the daily chart it looks like that price you bought at is near to a 1.272 extension at 2.57 the 1618 is at 2.18. Buy more ?

First the answer: Yes I intend to buy more DXO. As written all ETF positions have a target of 1000 shares initially. I just decided to scale into these positions as otherwise the daily movement will affect my daytrading as long as I have no segregate account for these swing holdings. In addition I don't see an up- and away type of market, but further consolidation in huge ranges before the market will be able to take off again. Too much damage has been inflicted in too short a time.
While the UYG position has options available so I get paid for my willingness to build a position, the DXO has a different rationale.

Looking at the above chart, short is the only way to go and where DXO a regular share I would go short and stay short until the company filed for chapter 11.

But DXO is no regular company, it mirrors the development in the Crude Oil market. And it is supposed to make a daily percentage move twice as big as the crude oil market is doing.

Will Crude Oil go to zero? A limited resource the whole world depends on. You really believe that then go ahead and short DXO.

Crude Oil is a limited resource and the moment the economy starts going again, we will see new highs in oil. It's just inevitable. I don't care if it's in 6 months or 3 years or 10 years, oil will go up again unless someone discovers a way to make oil from saltwater. But why would someone do that? With oil below 40$ in the short term? It makes no economic sense whatsoever!

Right now there is no reason at all to invest in oil or the oil industry. And the moment we need oil again, the world will find, that -what a surprise- there is not enough oil to bolster the economic upturn.
As I said, I don't know when it will happen, but I'm quite sure it will happen.

Friday the first call was made for oil below 25$...you remember what happened, when the oil 200$ calls were made? It wasn't long after these, that the market started to break down.
Surprise.. it were the big investment houses, who made these calls. And who was on the other side, if you believed that oil 200$ call and went long?
Who is on the other side, if you go short oil now? I won't bother you with the answer, but I bet you that even if Goldman is now a regular bank, they still have an inhouse department going against the mainstream. And that department might save the day in one or two years when their oil profits will pay for all the losses made in other departments.

DXO at 2.50 has a very limited downside. Sure it takes a while to go up again, sure Ultra ETF's fall faster than they rise as a 25% move down from 5$ brings it to 3.75$, while a 25% move up again from that level brings you to 4.68$ and not 5$.

So what! If oil goes really down to 25$, then I will have added to DXO at 2.25$, 2.00$, 1.75$, 1.50$, 1.25$ and 1.00$.

	Shares DXO	Price	Total
	200	2.59	518.00$
	200	2.25	450.00$
	200	2.00	400.00$
	200	1.75	350.00$
	200	1.50	300.00$
	200	1.25	250.00$
	200	1.00	200.00$
Total	1400	1.76	2468.00$

When oil is down to 25$ I will be down about 1500$ in my position as it will be worth about 900$ total. Should this happen I will still sleep sound as the size of the position will not affect my trading. My risk is really limited and to tell the truth I actually would like to see oil at 25$ to build that position. I have a bigger problem, if oil starts to rally now and I add to my position in a rising market only to see it come back down in spring and retest the lows made now.

Investment Plan

Today I decided how to handle this investment idea in the future.
(Part I, part II, part III, part IV)

1. I won't trade 10 cars (as I did last month, when I sold a great UYG long for a meager 30% gain instead of holding it for possible 120%, just because the position was affecting my daytrading).

I start with 2 cars and add to them. That way, my positions initially will be just take and forget positions, which is exactly what I want them to be in the start.

2. I will open a second account with IB, where i will park these position trades, so I'm not always tempted to daytrade them, something I just can't stop myself to do.

3. I will look for these extreme beaten down Ultra ETF's and start long positions in them. As I said I will start with 200 shares of the selected ETF and sell 2 in the money puts into the next expiration.

4. I will add to my position every 5.00, 2.50, 1.00, 0.50 or 0.25 USD down depending on the initial price I got for my position.

5. I plan for a maximum holding of 1000 shares in any selected ETF and will plan my add-on strategy accordingly. Regularly add-on's shall be made monthly by being assigned the shares against the in the money put's I sold. But I'm not prohibited to add to my position if an opportunity arises.

6. If prices go up, I will buy back my put and sell the next in the money strike to the upside, to make sure I get my add-on at expiration.

7. I will never add twice within a day.

 

I started this plan today with

200 DXO at 2.59, the 2 x Ultra long Crude Oil ETF (no options available on that one) and

200 UYG at 5.53, the 2 x Ultra long Financial ETF and

I sold 2 UYG Puts Strike 6 at 0.90

 

My homework over the weekend will be to identify other likely candidates for my investment plan. A list of available ETF's was recently published by Leavitt Brothers and can be found here.

Euro

Where do we go with the Euro from here on?

Euro is in a consolidation range for some time now. But where do we go from here? We had an exceptional rally in the markets yesterday and the Euro added nearly 500 pips yesterday at the highs. We came back quite a bit overnight and I have to decide whether I see Euro falling back to 1.2500 or whether the Euro has finished the consolidation and is ready to break the pattern to the upside.

To the upside? Hold on...Consolidations are broken in the direction of the primary trend, which is not up but down in the Euro. So why am I thinking that the euro might break the pattern to the upside?

Well it will break the pattern to the upside if that consolidation was a bottoming formation and the downtrend in the Euro, which started in July from the all time high, has already made a midtrend consolidation pattern, which was broken to the downside.

Let's take a look at a longer term chart.

Yes, the Euro has made a midtrend consolidation, which I marked in the chart above. The all time high is some pips below the second target from that consolidation range and our current year low is a few pips above the second downside target from that consolidation. So we can for sure say, the euro has already made a midtrend consolidation, it has broken to the downside and what we are seeing currently is no consolidation but a bottoming reversal pattern.

Anything else supporting that view?

We have made three higher lows and we are at the apex of a Wolfe Wave Pattern with an ascending baseline whose target is 1.32

Longer term where do we go from here?

If this bottom at 1.2500 in the Euro proves to be the bottom of the current steep downmove then the monthly Euro chart tells us we are in for a more leisurely ride in the Euro in line with the monthly volume weighted average (yellow line).

This actually would be a very healthy development as the steep ascend of the 55 moving average wasn't sustainable for the long term.

But this monthly outlook is too long even when I'm trading the euro on an account cash basis and not with futures. I need to decide what to do today.

Go long US Dollar an the basis, that euro tested and rejected 1.30 and is now returning to the 1.25 level or stay long Euro on the basis that we had 3 successful tests of the lows with strong support shown by the ascending lows. We made a nearly 500 pip move yesterday. This move needs to consolidate and we might retrace today. As long as 1.27 holds we are still in the uptrend to retest the 1.30 level. 160 pips from current levels to the downside sounds quite a lot, but I'm in euro cash, staying in the euro will cost me a few US Dollar, when converted to base currency. But Euro seems to be supported this morning looking at a 50 tick chart and therefore I'm not inclined to go against it right now. Actually I might support my stance by trading Euro futures on the long side today. Will see how the day unfolds.

Investment Plan (November expiration)

I'm down on my investment plan for the moment. I sold 10 UYG 6 Puts on 11/19, which got caught in the downward market spiral starting that day. So I bought these back for a loss of 600$ and at the same time sold the lower 5 strike for 600$. This weekend I was assigned the 1000 UYG shares at 5.00 which currently trade at 3.98.

I said earlier I wanted to start a longer time Portfolio on the idea, that without order being restored to the financial system, no recovery will be possible. I have no idea, if that assumption is correct or not. Maybe the banks will all be nationalized and the US government introduces the Chinese idea of capitalism. I don't think so. In Germany and a lot of other European states we have had government participation in private industries for a long time without becoming communist countries. Direct government involvement in private corporations can work and the US may only need to get used to it.

The government is like any other long time investor: They buy cheap and sell high. The German government sold most of it's silver -as we say here- until mid 2007. They had not a lot left (the railroads still have to be privatize) for future generations and they sure had become accustomed to the earnings these acquisitions provided for the last 20 years. Now everyone is running to the government for help and they provide that help at bargain prices against participation in the corporations. And this will be sold again into the next boom cycle. Governments have a lot more time than any private investor. It sure helps, if you can print the money you need.

Back to my portfolio, which consists of 1000 UYG now. Next expiry is 12/19 and the question is, will we get a x-mas rally or will Santa stay at home with a cold this year.

Well it doesn't really matter, I will try to sell 10 Calls 8 strike for 1 $, if I get it (it trades at 0.30 at the moment) and will sell 10 Puts 4 strike (I think) for 1.25. I will most likely have to sell the Puts first and might even decide to scale into them depending how Citi trades today as the development there was the reason UYG lost about 50% of it's value the last week.

Here is a copy of the trading spreadsheet.

Will keep you informed, how the story unfolds.

Update:
We have had a huge rally today.
And while I intended to keep the strike 3 and strike 4 UYG puts I sold this morning, I could not let the profits slip away after UYG made a 32.5% move today. This morning I was down about 800$ in my Options trading. This evening I'm up a total of 775$ after being stopped on my UYG position at 5.25.

500 $ margin

It's tempting, it's really tempting!

The last few days I have been testing a trading platform used by a broker, who offers me 500 $ intraday margin to trade the ES futures.

I have been trading on the long side in this 2 day breakdown and I made a ton of paper money. Unfortunately by taking risks my account would never ever survive. The sell-off into the lows on Thursday I survived by trading 1000 cars in the final add-on. 1000 * 500 = 500.000 USD margin and every tick is worth 12.500 USD. That means I was 10 points away from burning half a million USD, when the ES traded at 746 Thursday evening. Cool.

But even realistic trading with the leverage that margin offers me, got me trading up to 15 cars with a point-value of the ES (4 ticks) of 750 $ on a margin used of 7500 USD. Still another 20 to add, if ES continues against or with my position, depending on the strategy traded. Yes, gains come fast with that kind of leverage, but losses come even faster.

On the other hand there is my good old extremely conservative Interactive Brokers account, which offers me intraday margins on the ES which equal overnight margins. I'm limited, very limited trading the ES with that kind of margin. But surprise, I made 2.700 $ trading just 1 or 2 cars in a contract I refused to trade so far, because I considered it extremely difficult and to tell the truth sometimes very boring to trade. This has definitely changed.

Not being able to add at a loss, means you have to use stops and the ES is the first contract I trade, which is not as fuzzy with stop levels as other contracts I'm used to. After you have identified a short term support or resistance, that S/R level either holds or it's down to the next S/R level. That means the ES is the first contract where my add-on strategy really works.

I wait for a trade signal, I take the trade at a level, where I can use a 17 tick stop, which means the initial risk is 220 $ (incl. comm). Now I place an add-on 1 or 2 ticks above the last S/R which has to be nearer than the 17 ticks. EG: Long ES 847.5, Stop at 844.25 Add-on at 845.25 assuming 845 was the low tested and rejected on the last move down. The Add-on moves my trade risk to 330 $ and the average comes down to 846.5.

You can ask, why not enter at 845.25 in the first place after you get a trade signal? Well, I miss the trade if I don't take the signal when it occurs. That's why I usually also have a Add-on at 1 or 2 points above my entry. But to tell the truth, in the current environment these add-on's in the profit have proven to be extremely difficult to manage, as the current volatility in ES means in about 99% of all trades, that this trade will be down under at least for a time and the trade risk has considerably increased. There is no new S/R level to place the stop, meaning the stop has to remain at 844.25, while I added say at 850.50, bringing my average up to 849. That means the trade now carries a risk of 490 $ compared to the 330 $ I was willing to take initially.

As it stands now, I will leave the profit Add-On's until I can trade more cars in the ES. If ES runs right now, it's worth to be on the ride even if it's just 1 car. And if it first trades down only to be rejected and driven up again then I have added at the optimal spot 1 or 2 ticks above support, if I want to go long.

My Fib-lines continue to work real nicely. Here is a new picture for the weekend:

Trading ES

With the big ranges we are seeing in the last weeks and months I'm thinking about trading ES again. It feels safer than other contracts which can jump 10 to 15 ticks on me in the blink of an eye. I applied my standard chart template to ES, but wasn't really content. And I did what you should do in such a case. Go back to the basic.

Start with a clear candlestick chart and add what you feel is missing to read the chart:

I added a moving average to have a trend feeling.

I added my round number tick lines calculated from yesterdays close, which I use as horizontal gridlines. Not only will they show me round numbers most traders trading with numbers only have on their screen as well, the spacing also tells me something about the volatility of a contract compared to another one. The wider the spacing the slower the contract trades.

Some markers on the right side showing me the pivot, today's and yesterday's important trade levels.

That's it.

But my wonderful band I introduced to tell me about oversold or overbought conditions, my Donchian channel...Gone after I applied the great tool I had sleeping in my pocket. Stashed and waiting to be used again

Sweet, don't you think, considering I got that picture by applying the Fib-tool to the opening range from 888.25 (strong premarket support into the open) to the open move high at 907.

Trading your account

I said, we see unprecedented moves in currencies in my last post, but I failed to recognize a spike when I saw one.

1.3150 would have been the right spot to go back into the USD. As you can see the Euro came back to the 1.29 level quite fast, actually it bounced at the 50% line and I stayed in the trade, Euro broke further overnight on October 31st, but held the bottom above 1.2650. The Euro tried a swing up, but failed breaking the 50% line a second time and I went long USD in my account at 1.2720. The Euro continued the 60min down pattern and may actually test the 1.2350 lows prior to the rate decision on Thursday, which might cause a relief rally, as I don't see Trichet cutting by 1% as some market participants seem to price in right now.

One thing to remember, when trading your account that way is, that you are never short. You are always long one currency or another and by going into your home currency you go flat and take a time out.

...... 6 hours later

MISTAKE...

and it cost me big today, as I trade the euro on the short side for most of the morning.

I failed to recognize this huge buying wave. Yes you ask, how? I was biased I guess. And that bias cost me in a row of stopped short trades in the futures. The account is back into euro at 1.2820 and we will see what develops after the election.

....

Upmove

Manage your currency holdings

In my last post I told you I can't really invest. Buy and hold, I tried it for two days but took profits the moment it looked ripe. Still for a few months now I am a kind of long term swing trader as I now come to realize.

I have my IB account for some time now and when I opened that account in 2000 I think it had to be in US-Dollar. I never got around changing it to the Euro base currency, even if I live in Germany and obviously need Euro to pay my bills. For more than 5 years I just held the currencies as they came in. This year it happened to be mainly in Euro and the British Pound, as I traded mostly instruments valued in these currencies. As long as the Euro was rising that was just fine, as my USD-balance went up and I started the trading day with some gains already banked (at least in the USD). But when the Euro started it's slide it got more and more difficult to trade back the USD-loss I started the day with. Actually I changed my daily trading excel sheet, to include the daily E/U exchange rate and converted my USD holdings into Euro. Now I realized, that I wasn't doing that bad. The USD-loss I saw in the morning did not transform into a loss in my Euro holdings, as it was just happening due to a change in the E/U exchange rate.

And finally I realized, it might make sense to set certain levels, where I convert my main currency holdings into one or the other currency. I decided to go long USD, if and when the Euro broke the 1.39 level. I know, that's late, given the Euro had seen the break from 1.60 already, still, you need to set levels at which you react and I thought, If 1.40 holds, then we go up again and I'm better off holding Euro's, otherwise we go a lot further down and it might make sense to hold USD.

You know how it went. The euro broke down to about 1.2350 and while my account remained fairly stable in the USD, when converted into Euro it made a huge difference.

On the way back up, I was quicker. Two days ago the Euro had broken 1.25 to the upside and the Asian markets traded it to 1.2570 when I opened my screen in the morning. I saw that as a double bottom and converted my currency holdings back into Euro.

Now I start the day again with nice USD gains, which translate to no gains at all converted to Euro. But I do not lose on this Euro rise by holding USD, which is something already. We see huge movements at the moment, which took months in the years before and I might have to react fast, if Euro starts to plunge again. Still I'm looking at 60minute and daily charts now in the Euro instead of 250, 50 and 10 tick charts for my intraday business.

I am naturally Euro long living in the Euro area. So holding Euro doesn't do me any good. But making money on a rising Euro is something for my daytrading business until I hold funds in such amount, that I can really hedge against averse movements. Making money on a falling Euro is something different, as I just need to park my money in a different currency. Around 1.29 to 1.30 is the new level, which the Euro should not breach, if we hold above 1.30 today. Actually I see the Euro with an upward bias for the next 7 days until the ECB rate decision next Thursday, when Trichet might decide to follow the FED step in a 0.5% cut in rates, which might trigger the Euro selling again.

Investment Plan III

I'm a daytrader, I can go to swingtrading, but monthly investments....that will take time to get used to. The first trade is closed and will be reopened at a lower level. I really can't help it, but a 13% return on investment in 2 days is just too nice to be left floating around. Especially in an environment, where volatility is high and the downside potential is a lot bigger than the upside.

Still I learned quite a few things in this trade. And one is that you can't underestimate greed! I held off selling the Call, because I thought, if we get that 1000 point spike in the Dow, then 12$ on UYG will look shabby and I will regret having sold the 12$ call. I still had the order in at 1$, but there was never a realistic chance to get filled with the call trading 0.25 0.35 for the last 2 days. On the other hand I might get more greedy on the Put side. Not taking one that far out, but a nearer strike, which is priced higher. In case we rally I always can buy it back and resell. The 7.00 Put I sold went down 33% but it was still just 25$ as it went from 0.75 to 0.50 when I bought it back.

Now I will wait for the FOMC and reenter the market. Not necessarily in the Financials, but maybe in the Dow30 (DDM Ultra Proshares). And I actually might do it by selling the Put first.

It's an interesting area of trading, which really moves aside from my daytrading business, as it moves at a different pace.

Will keep you informed.

Investment Plan - II.

I started the plan yesterday.

Long UYG at 8.00,
sold the November 7.00 strike put for 0.75, but
held off selling the November 12.00 strike call, as it was trading at 0.25, which I was not willing to accept, considering the upmove potential and the possibility, that we are near a Double or Tripple Bottom.

Charts favor a further downmove, I know. Still this morning we have a huge reversal in the Asian markets and Europe is opening with a Gap-Up. With the FED meeting ahead we might actually see some kind of relief rally and then I should be able to sell my November 12.00 strike call at 1.00$ or more.

I also had a sell order for the DDM (Ultra Proshares Dow30) November 23.00 strike Put in the market yesterday, but wasn't filled.

Only thing I need to get used to now is, that my account window on my trading platform is now always showing open positions, which have nothing to do with my daytrading business. Actually I'm already thinking about opening a second account and moving the longer term stuff there. Might be a good idea, if I do not incur monthly costs in that account at IB. Will have to check, if an account without any market data subscriptions will cost me something.

Investment plan

Maybe I have been watching CNBC too long, as I am starting to believe, that the current price levels are actually starting to look interesting to begin a longer term investment in the markets. Despite the gloomy economic outlook I'm convinced, that the (financial) world will not end and that we will avoid the Japanese stockmarket pattern in the US. I might be wrong, but then I'm starting small so I will not incur huge losses.

I have no idea which company is worth investing in and actually 8 years ago I lost so much in the stockmarket, that I'm still not willing to trust myself in this regard. But I know a lot about indices and trading indices is what I do for quite some time now. That's the reason, why the Proshares Ultra ETF's look like a good investment vehicle to me. Volatile enough, that even small investments can offer reasonable returns. And the Long ETF's trade at such depressed price levels, that this fact makes them a nice learning vehicle.

Take 100 UYG long now, which are the Ultra Financials, and even when the Financial sector is nationalized, the maximum you risk is 825$.

But just owning stock is not what I look for nowadays. I'm a greedy bastard, which means, if I decide to become a stock owner I want to be paid for the risk taken and that means Covered Call writing.

So after I take the long UYG at 8.25, I will decide that I am content with a 30% profit in 20 days.

That would mean a price for UYG of 10.73. Selling a 10$ call for 0.75, for which I will get 75$ gives me exactly that. If UYG trades above 10$ at expiration, I have to deliver my UYG shares and give up the additional gains, but as I said I'm content with a 30% profit in 20 days. It's like taking a target in my futures trades. I usually miss 50+% of a good move in any trade taken, but I'm more than content with a nice profit made. And if UYG trades below 10$ at expiration I got a nice 75$ for holding something worth 825$. That's 9% interest paid in 20 days! Try to get that for just holding your stock in your account.

Ok, that's a fine return, but in November I plan to buy another 100 UYG.

Now Art Cashin on Friday said something very interesting: If he would like to invest in this environment, then he would sell a put and wait until the stock is given to him.

I first did not understand him, to tell the truth, but it's actually ingenious!

I know, that I have an investment plan, which tells me to buy 100 shares every month and I have the money to do so.

Now I think about the investment I am willing to make and about the price I think it's reasonable to add. 30% below the current price level is a price I consider worth adding to the financial sector. So I think UYG is worth another investment at 5.78$. That means I will sell the 7.00$ put at 0.80, which gives me 80$. If UYG trades below 5.45 at expiration, I pay more for UYG than necessary (I included my profits for the expiring call here). But considering my belief, that the US can and will avoid the Japanese stockmarket syndrome, which shows us a declining stockmarket for 2 decades now, I think, I will see a time in the future, when the financial sector is sound again and the UYG will trade above my average.

And if UYG trades above 5.45$ or even better above 7.00$ my next investment in UYG is already 80$ cheaper.

In the unlikely event, that UYG trades above 7$ but below 10$ at expiration, I receive 155$ for owning stock I want to have and consider worth adding to. Not a bad return for 20 days doing nothing.

Obviously I'm not the first thinking these thoughts and I'm sure some of you reading this can point me to errors in my thinking, as I really have not a lot of understanding in options trading. Please let me know, if my basic thinking is wrong, if I take on higher risks than I see now following this plan.

Screw-up

It doesn't matter how bad your screw-up was, if you recognize it as a screw-up, if you are able to see, why it happened, you are already on your way out of the woods.
Losing 30% of your account in one day? With the recent turmoil in the markets it can happen and has happened to more than one trader I know.
But the question is, what do you do next? Why did it happen? Was it your system, which made you consistently money in the past, only to be lost within a few bad bad trades, or did you change your own behavior, your own responses to the market.

Certain trading techniques work great in a ranging or slightly trending market. But if the range/trend goes 500 points as you see in the YM recently only to reverse within the next 30 minutes, any trading method designed to scale into a trade, when it is at a loss, might not work, because the range is just too high. It worked in calmer markets, but it does not work right now, as you can't afford the risk involved.

Did you ever try to swim in the ocean, when the waves are between 1 and 2 or 3 meters? When they go beyond? If you are not careful and a wave breaks over you, and you are pressed under water, struggle to come up, only to have the next wave break above you again, you might feel real panic. Only by calming yourself and diving below the next wave instead of tumbling around, will you reach the surface again and be able to swim to shore.

Using trading methods, which worked for years will kill your account in this environment. But the problem is not your trading approach, your trading rules. They are most likely still sound, even if we have very high volatility.
Good trading rules work on small intraday timeframes as well as on daily charts. The only difference is, that the risk and the possible reward increase the higher the timeframe becomes.
Currently we see daily or weekly ranges made within minutes and hours. But that doesn't mean, you won't get good trade entry signals.
But your money management rules, they need adjusting!

Why are you a daytrader? I know, why I'm a daytrader. I can't afford the risk associated with holding overnight. My targets are smaller and the risk I take is smaller, as I place the stop nearer. But right now -as we all know- we see daily ranges within minutes. That means you need to adjust your stop or you get stopped out a lot more often than you are used to. Most of us trade with targets. If the Internet connection breaks down, at least a stop and a target order are placed. But did you adjust your target to the higher volatility, to compensate for the wider stop?
Most likely not, because you trained yourself to be content with 10 or 20 points even if the market ran another 100 points after you exited. Adjusting this is very difficult, as you need to overcome your fear of losing paper profits.
And, at least I, can sit calmly in a trade in the red, as long as my stop is not hit, waiting for it to return to green, while sitting in a green trade for a longer time always urges me to take profits now, instead of waiting for the next leg and the continuation of the trend.
Adjust your maximum position size. If you scale into a trade adjust the levels at which you scale in. be prepared to go out in a moments notice, if the trade does not work, because some moves just don't stop at the moment.

If you lost high, do what you always do, see where you failed and continue trading your signals. You can't climb out of a 30% loss in a day. But if you have a sound system, it will work in this environment, if you adjust your money management rules. And once you made it back, don't relax, continue doing what you did to climb out of the hole, so you can start the next leg up in your account.

Money

You ever wondered how Money is created?

Take a seat and watch these videos

Part 1:

Part 2:

Part 3:

Part 4:

Part 5:

Bailout Bill

I'm following the discussion from abroad, living myself in Germany. As our economy seems to be as affected by this mess as yours, I thought to post my thoughts as well.

I have a question? Who got all the money in the first place. What happened with these now so-called toxic loans in the first place? Before they became toxic, they were regular mortgage backed loans to American people, which were then enabled to buy houses or enabled to finance their living style.

People, who shouldn't have gotten a loan in the first place, as their regular income did not allow them to pay that loan back, got a loan, as that loan made the broker and the bank money in commissions.

Surprise....Some of these people really were not able to pay back their loan. But I bet there are a lot, actually most likely the majority, of the people, who got a loan, who are still paying that loan regardless how difficult it is, as they want to keep their home for their family, as they want to continue to finance the eduction of their children for a better future.

At least, that's what happens here in Germany, if someone has a house, who is nearly bankrupt. He will still do whatever necessary to keep the house.

Allowing people to have a roof over their head, even if they can't afford it. Here in Germany it's called social welfare. It's something the government and the communities have to pay for. Everyone has a right to receive at least the minimum necessary for living and that includes a place to live.

I don't know, if it's the same in the US, but taking a bigger view to me it seems, the banks were doing the governments job, when they gave people, who could not afford a home, the money to buy one.

Sure, the banks then did, what every good manager would do, they passed the risk on, they created instruments, gave them a grand name and sold the mortgage backed loans to someone else. That one sold it again and made a profit and so on and suddenly the world found itself in the mess we are now in.

But that doesn't change the fact, that our taxes and I say our taxes, because my taxes are used for this purpose as well here in Germany, should partially used to give every citizen in this country a place to live.
It doesn't need to be a big one, but I think every family, every kid has the right to have a roof over their head so it has a chance in life.

In Germany this is done by a program called Hartz IV, it's not the best, but it provides the basic living necessities to those who need it. And that program is extremly expensive. We pay for it with our taxes.
The costs? 26B to 30B per year. That's about 250B for the last 10 years. And we have just 80.000.000
people living here. You have nearly 300.000.000 US citizen.

Do the math: The 700B for the bailout bill. Isn't that just the bill come due for a task the US-government had to do in the first place and neglected to do for at least the last 10 years?

Strategy

Adding at a profit, yes, that's how it's done. You scale into a profitable trade.

You remember the last time you did it successfully?

In daytrading it just is difficult to do, as you enter at highs for longs or lows for shorts usually, which brings the potential profits down, while risk goes up, as your average entry price for your position moves nearer to the current price.

Nonetheless, I tried it today and as I know you love proof for real trades, here are my FTSE trades:

I took a long after the open and added 3 minutes later. The high of the move was 5139 and then the FTSE sold off to a low at 5100. I added at 5113.5, a contract which was sold at a loss at 5108.5. Then an unexpected meeting came up and I had to leave the computer. I set 2 stops at 5114.5 and 5106 each and left the desk for 1h. Coming back I saw that the DAX had rallied and FTSE was still struggling below 5140. I added at 5140 and closed the position into the spike at 5149.5 and 5154.

My initial idea was long 5130.5, add 5115.5 and 5100.5, but that idea of adding at a profit popped in my head, so I added at 5136 instead. Instead of a position average at 5115.5 I was long 2c at an average of 5133.5 with the same clear position stop below 5090. Stupid!

Next comes 5139 trading with the DAX going up, but me refusing to move the position stop, as I saw a good long bias in the European markets with the EOE trading nicely up. The EOE V8-FTA is the Dutch futures contract, which includes mainly banks and insurance companies and in this environment is a contract you want to watch, as it reacts most sensitive to any bailout rumors. So I had a long bias and was willing to give the trade room.

Add-on's I usually trade not in front of the market but by a trailed StopLimit order where I'm taken in, when the market turns. 5113.5 was a tick to narrow and I exited that contract at a small loss, which moved my position average to 5136.

FTSE bounced from 5100, with the DAX and EOE making new daily highs. Still the seller at 5128 was not gone and I suddenly saw myself confronted with a meeting I had not anticipated.

I had to decide what to do...Closing the position at a loss of more than 200 Pound..Don't like that...especially, when I still had the long bias confirmed by the trading in the DAX and EOE (ES was treading water around 1191)...leaving the position open with a Stop at 5090...too far away as while I sure like to trade double bottoms, the retest of the 5100 would have been the forth test of that level within 36 hours. NO if we go down there, we break it...see that 60min chart for that..

So I put the stops at 5114.5 and 5106, which would have been a bad loss if both were to be hit, but then I was sure I would see FTSE go well down below the 5100 mark and that is what stops are for...Protect the account, if things don't work out.

Coming back at 10:50 I saw my stop at 5114.5 had been a bit too high as we had based at the 5112.5 level and finally the up bias took over...

The position average was now 5154.5 with 1 contract still long. Just great...yes there was potential for a good upmove, but there was also a lot of overhead:

5139 was the daily high, EOE and DAX had made real good upmoves already and were trading at daily highs...Add-on at 5140...traded and being long 2c again the position average was now 5147.5. Good, at least below that 5150 resistance.

Chart was long, better entry would have been 5135, but that - on the other hand - would have been too near to the daily high, to be a good entry long, so the new DH was as good as any other entry.

Price stalled at the 5150 level and as the trade was already open for such a long time plus had been considerably down I took 1 off at 5149.5

More stalling above 5150, which let me exit the trade at 5154 to settle in again after my meeting.

I missed that nice bounce from support for a new long writing this article instead...

Adding at a profit got me.... a total of 12.8 points minus commissions or 56.76 Pound. Sure not worth the risks I took.

Let's look at the initial plan instead, which I abandoned in favor of adding at a profit.

This was the situation I was looking at this morning:

Lower highs with support at the 5110-5090 level. If that support broke I would not want to be long, so Stops at 5090 for a position trade were fine.

Initial trading gave me support for that long at 5130.5, target for that trade 5151, stop 5090 with add-on's at 5115.5 and 5100.5

Risk in that trade: 153 ticks or 765 Pound
Potential: Without add-on: 205 Pound, one add-on: 560 Pound, two add-on's: 1065 Pound

The trade idea would have done quite well, abandoning the plan got me 56.76 Pound while taking risks of more than 600 Pounds at the low of the trade. Sure at the low this plan would have been down 230 Pound as well, but 230 Pound compared to more than 600 Pound down. I know which plan I prefer.

Amy MacDonald

Get yourself in the right mood for trading. 14 minutes to get you in that positive, alert, but relaxed mood, where you are able to swim with the markets and just do what is necessary to do....

A live concert with Amy MacDonald

Admission

I dogged a bullet yesterday. Yes, had I followed my impulse, I would be down this morning nearly  13.000 USD.

Yesterday I traded HHI.HK, which are the Chinese H-Shares futures traded on the HKFE. This contract has better volume and is normally not as volatile and fast as the HSI futures.

That's what I did:

I first had a winning HHI.HK trade, followed by a loser. I then switched to the HSI, where I had another loser, as I really did underestimate the selling pressure in these contracts. Even with a 5% down move before I took my longs the selling pressure remained.

I took a long HHI.HK 15min prior to the close and added to that one at the close of the equity market. (Futures continue to trade for another 30minurtes after the close of the equities exchange.) (marked red)

I was down 2 trades in a row and somehow thought, the market really was near a bottom. So I was more than willing to hold the position overnight, if it would not show me a profit within the next 30 minutes. It was revenge trading, it was dumb and I knew it. I was talking to myself not to do it. That the account always comes first, but that voice inside me was still very insistent, that that bottom in the HSI and HHI.HK made earlier would hold overnight. 21 minutes later I was taken out on a short covering spike for something like 18 ticks. The average entry was at 8731 and I had placed an exit order at 8749, in case of such a spike. HHI.HK was trading around 8680-8700 for some time and I just thought, if I get out great, if not I will hold it. To tell the truth, I still might have closed the trade at a loss prior to the close, but I'm not sure about that and that's the reason I'm writing this article.

Here is what happened this morning:

I marked the close. We opened with a 300 point gap down and dropped nearly another 700 points. HHI.HK was down around 10% after the morning session. 2 contracts down 1000 points, that's 100.000 HKD or 12.840 USD down. With the increased margin rates at IB for index futures, I would have gotten a margin call near the bottom.

And that huge recovery rally, which started in the afternoon session, after the market gapped up 600 points in the HSI and 400 points in the HHI.HK would have seen me without a contract long.

I'm a daytrader and the day offers enough opportunities to make good money. There is no need at all to hold a position overnight.

Timeframes

If you use charts at all you have to answer one very important question:

What timeframe do I use?

If you look at traderchats, Yahoo/Google trading groups, follow one or another Guru, they will tell you to use this or that timeframe or a mix of them. Some claim 244, 333, 666, 2400 ticks are magic, others use 3 minute, 5 minute or 60min charts. Users with more sophisticated chartprograms try their hand at Range or Volume charts.

I'm no exception, I have used them all and I still have not found THE MAGIC CHART.

But I have recently found something else, something the timeframe you use for your trading should provide to be of use to you:

1. You need to get clear entry (and exit) signals from your chart.
2. Prices swing and you should see a retracement not too far away from your profitable exit. Taking 80% of the available range is emotionally great, taking 5% on the other hand, even if the result is the same will let you feel like a real dumbass.
3. If stopped, prices should continue proving your stop right. You don't want prices turn one tick away from your stop.
4. If you exit early, the retracement should give you another entry signal.

Let's start with a 30min DAX chart

 

Yes you see nice moves on that chart. Now say you usually take 20 ticks per trade, which translates to 10 points or 250 Euro/trade on the DAX. Not bad, but looking at bars showing moves of 50 points within one bar, these 10 points are just noise. Believe me, if you trade them with a small account they are not. On the other hand, where do you place a stop. Say you got a signal at 6210 at the open today for a long. The low of the current bar is just above 6180, the previous low is above 6170 (yes it's a Heikin-Ashi bar, so the low is not the true low, but I use HA-bars to see the trend better and that means the trend remains intact as long as the HA-bar low (or high) is not broken)

6210 long, with a target at 6120. Bar high was 6236, low 6182. My 10 point target is just noise on that chart.

Here is how I trade nowadays

Yes it's a 3 tick chart on the DAX, a 50-tick and the 30 minute chart. Remember I use the IB-datafeed, so expect 1/3rd of the regular number of ticks. On the E-Signal datafeed you might use 10 tick, 150 tick and 30minute to see a similar chart. (And no, I don't care about the missed ticks when I trade with the IB-datafeed, I don't need them. As you might already have guessed from my affinity to Heikin-Ashi bars, I don't care about the individual chart, or it's exact OHLC. I care about the swings and I want to enter a swing in the direction of that swing, take about 80% of the available range and exit with a feeling of a job well done))

That 3-tick chart on the DAX was the first timeframe, where I finally got 80% of the range with a 10 point target. The 50 tick chart has to be traded with 25-40 point targets to get the same 80% of the available range result. Unfortunately that comes with wider stops, which I can't afford on the DAX. Yes the 3-tick is fast, but using Heikin-Ashi charts the bars are clear, you get swings instead of tick levels and you can actually swing with the market.

3-Tick (real Tick chart) compared to a 3-Tick (Heikin Ashi chart)

 

So how do I decide what trade to take?

3-Tick is holding below the 240-ema, 50-Tick might bounce up, 30-min is in a downtrend, but retracing. A long is valid on the 50-Tick above 6200. That level is below the Stop level indicated on the 3-Tick, a long is valid on a bounce from the band on the 3-Tick

Seconds later we got that 240-ema test on the 50-Tick, a test of the band on the 3-Tick and a long around 6205 (6204.50 to 6205.5). The exit was a nice 10-pointer on that 3-tick chart. On the 50-tick its noise, on the 30 minute not visible.

So when you decide about the timeframe to trade and the charts you look at keep in mind, that you don't want to trade noise. Having entry and exit within 1 bar is fine at times, but for the long run it's just stress as you trade just intrabar noise. You trade with charts to see what the market is doing. Make sure you really can see what you want to see.

Responsibility

I have been reading a few articles about the Woodies CCI club and I want to put some perspective to it, even if it might not be another voice in the condemn Ken Wood chorus.

A few years back I have been in Woodies CCI club. I left, because at one time I was discouraged to post my ideas and discuss them as they seemed to distract new traders. Still I have to say I learned a lot in the WCCI club. Not the system, which did not work for me (and may not work for anyone), but I learned pattern reading, discipline, account management. I had already lost a small fortune, when I came to the club, so I was already humbled, knowing that you never ever follow someone else's call, that if you trade futures, you start trading 1 contract and work your way up to keep the risk acceptable.

Some Futures and Forex broker give you better than a 100:1 leverage. If you trade that kind of leverage as a beginner you are simply crazy. If you go to Vegas and someone tells you to put all your money on the number 13 because he has a sure system, that that's the number which will come next... Would you do it? I don't think so. But that's what some in the WCCI have been doing it seems. It works when it works.

Today I trade with an internal margin of about 10k$ per contract traded. Anything less exposes my account to risks which are just not healthy in the long run. I went bankrupt a few times when trading futures, but I never had someone else to blame for than myself.

I have no idea what Ken Wood is doing or not doing with money supposedly going to the MAW foundation. And I have no intention at all to defend him. And if he committed crimes he should be held accountable.

But to blame him or any other guru

• for your own lack of responsibility,
• for your own inability to manage your account,
• for your own inability to see that a system is not working,
• for your despair or addiction, which lets you continue trading real, when every other trader would take a break and trade demo for a while,

is not ok.

Trading is about taking responsibility for your own actions. If you are new to trading and want to learn it, you start demo first, then you trade small and then you work your way up. It takes time, but it's the only way I know.
Do you take over a company as CEO without any business experience at all and expect to be profitable? I don't think so. Usually you go to business school first, then you learn the trade and then you start as CEO. You still might fail, but your chances have become a lot better now. If you expect success immediately, most likely you are doomed. And that has nothing to do with Ken Wood or any other Guru.

Oil

Here is how I see the oil market unfolding

It's a daily continuous CL chart and I have added a Trendline fan. As you can see 2 trendlines have been broken to the downside with the next Trendline coming into play at 110 and then the last one going back about 2 years at 87.

As you can see the upmove had as first target (green line labelled T) 115 and as second target 145, which was tested to the upside, but then proved the correct target for the upmove.

Now let's look at the upmove itself. We have retraced more than 33% and are about to test the 50% retracement level at 116.50. That corresponds loosely with the first target of the upswing at 115.40.
A bit below you find the Volume weighted longterm MA (240WMA) which might add support as well.

That means I see the 116-114 area as a strong support area for oil, with the 110 level as second support below, as that level corresponds with a 62% retracement level from the top.

Add to that reports at CNBC that with gasoline below 4$ demand is coming back into the market, I see a bottoming process starting in oil at the 115 level with 110 as eventual spike low.

I usually don't trade long term, I trade day by day. Still I like to have a view on the market. I like to know what longer term traders see in a market I trade. And maybe I will manage to trade longer term myself.

Trading coaches

2 years ago I met a very gifted trader and she agreed to teach me. I learned a lot during the time, I blew it later not due to her fault, but because the trading plan was not suited to my style of trading. It just wasn’t my edge in the markets. The trading plan worked then and it works today. I could even trade it today, but it still wouldn’t be my plan and I wouldn’t feel comfortable trading it. A few days ago I had the following discussion with David

[09:24] (croc): there is upside pressure on oil this morning

[09:25] (croc): but it's early, so expect range trading for the time being with higher lows

[09:27] (croc): 124.20 -124 is a good support this morning, 125.30 needs to be taken out for any move upward having legs

[09:31] (david_uk): morning croc, do you no longer display those 'volume profiles' on your charts?

[09:33] (croc): no, I can now see them without displaying them, so it's just clutter on the chart

[09:34] (david_uk): what do you mean? Do you mean that you can visualise the poc ?

[09:36] (croc): the poc is not really important as it does not act as Support/resistance but as a point around which prices swing. The 66% volume lines are a lot more important, but these you see as well without having the lines shown on the chart

[09:37] (croc): thing is, you need to have clear charts. The less you have on a chart the more it can tell you

[09:37] (david_uk): you can 'see' them or you can visualise (imagine) where they would be?

[09:39] (croc): I look at a chart and can tell you where the current POC and the 66% volume lines should be. Call it as you will, I have removed them from the chart, as they are no longer necessary for my trading

[09:40] (david_uk): ok understood

[09:40] (croc): It's the same reason why I have no oscillator (STO, CCI, RSI) on my charts

[[09:40] (croc): I know what level these oscillators have approximatly when I look at a price chart, so I don't need them on the chart

[09:41] (croc): I used to trade divergence on these oscillators, and I see that divergence when I look at the pricechart only, so I don't need to display the oscillators

[09:43] (croc): If I add a cci on that 10 tick chart I showed earlier, you will see higher lows on the cci and a long at that last 124.25 where I had a small long arrow placed on the chart

[09:43] (croc): so why do I need a cci, if I see it on the chart itself?

 

[09:47] (croc): or do you need a volume/price histogram to tell you that 124.85 is a short term support? (marked on the chart)

[09:48] (croc): add to that that gold is trading at the daily highs, HO and RB are trading up and you have a low risk long trade

Be prepared that any method you learn from a teacher will fail, if you can't make it your own method.

It doesn’t mean you are not suited as trader, it doesn’t mean you can’t make it or that a good teacher will not bring you forward. Any teacher, who shares his/her method with you and explains it, so you can understand it, will bring you forward regardless what trading style you will later adopt as your own trading style.

A trading coach might bring you a huge step forward, but he can’t force you to drink. Only if you understand why the method works, will you be able to profit. And then it must still be a method within your comfort zone. Meaning the risk taken must

Trading PA means you have to let go of a lot of precious thingies like oscillators or arcane indicators. You don’t need them, but first you need to trust yourself that you can walk without them. And believe me it’s difficult to let them go, to accept that they are not a way to finding the holy grail. And be prepared to lose first and make it back later. We look for security in an unsecure business, where the trade which looks riskiest actually is the safest trade available, while the trade which looks 100% sure is the one which no longer works, where you go long 1 tick below the top or short one tick above the low of the day. And you will sit there unable to take the next trades asking yourself, why always me, why do I always get the short end of the stick. Of course the next signals would have paid for the one loss and when you are ready to take the next trade the market is ripe to go again against the 100% sure signal giving you the next loss.

I have found my edge, my own interpretation of price action. I have losses as everyone else, but I trust myself now and know I will trade it back. I just need to continue trading my plan because price action works. I still sometimes struggle, but I get better and I don’t need 20 trades a day. I don’t need to trade a market, if I have no feeling for it, I trade the markets which look like they will suit my trading plan today. If I make 4 or 5 trades per day and get my 70 to 100 ticks per day I’m more than content at the moment. Rome wasn’t built in a day. No need to take higher risks by adding contracts if you are not ready for that risk. I always have a small grin on my face, when I see brokerages advertising low margin rates. It might be nice to trade oil with a 500$ margin, but that would have thrown me out of the game long ago. At the moment I apply an internal 10500$ margin per contract traded. So I don’t care about margins really, because my money management plan won’t allow me to make use of lower rates anyway. The associated risks are just too high. Before anything else you need to keep your account safe, so you can trade the other day. And overleveraging is the sure way to the broke house.

Wall-Street Crime

I have no idea how long this report will be available on the Net.

France24 made a report about rogue traders. Watch the video it's worth it.

Joe Jett, a failed bet on Wall Street

I could not resist....

Withdrawals

Is that really worth writing about? Chris gone over the edge. He's writing about withdrawals. What's there to write about? You instruct your broker to transfer money to your account. You usually do that only when you made profits and you cash them in. It's no longer paper money in a far away account, it's suddenly something tangible. You see it in your bank statement, you can buy something with it.

But ...

...in my brokerage account it looks like a loss, it feels like a loss and I really have to tell myself

it's not a loss, it's a withdrawal, which just happen to have the same effect as a major losing trade:

Your account balance is sharply lower,

your margin is smaller and

you have to walk that path to - in my case - 30k again

A path I already took a few times in the last few weeks

only to be beaten below by a stupid mistake again and again.

 

On the other hand trading for a living means you have to live, you can't have the fun student life, where you are financed by other means. Your profits have to finance you and some profits have to be taken out of the account to finance your life. It's just a fact. So better enjoy your profits and don't let the withdrawal spoil your day.

Hmmm...just that that dumb feeling won't go away, which tells me that if my account was >30k on Friday and today it's <28k, that about 2.5k are missing. And these 2.5k are gone and usually if something is gone in the account it has been lost. I tell myself, it's not lost, it's a withdrawal...but that concept is just too new it seems...yes I have to admit, I just started it a month ago and that's why I have to find ways to deal with the feelings, which come up.

I made no withdrawals during my learning years..I made some payments when I had been busted instead...then I made the money back I invested in my learning...then I build my account to have some leverage as I did not really need the money for living...now I decided I should start taking something out on a regular basis.

I now have two approaches to fool my subconscious mind, which refuses to see a withdrawal as a withdrawal

In my tradejournal, withdrawals are recorded at least 1 week prior to the day they have been made. So looking at the journal I see no big loss today

When I have the money in my bank account I go out and buy something for myself. A bonus for a job well done. I like it, it feels good and it convinces my inner self, that the money is not gone but actually there. Hard cash which I can spend as I see fit.

I'm sure, once I'm used to it, I won't need to fool myself any longer. But I've learned, that it's better to listen to your feelings and to respect them. Otherwise they turn around and bite you by letting you do real dumb stuff, until you listen and deal with them.