Studying price movement with Forex technical analysis involves charts. The theory of it is that if you look at the historical records of how prices have moved in the past, you can identify tendencies and trends which will mean that you can predict how the prices will move in the future. Then as soon as you spot an emerging pattern that fits your system, you have a trading opportunity.

There are three types of Forex charts:

- The line chart is the first one

The name of line chart tells it all. It is a line connecting the closing prices. Ups and downs of that line show the movement of the currency pair. Unfortunately this type of price does not show you any information on price behavior within the time period. You can see only the close price.

- Second chart type is called bar chart

A bar chart will show a series of vertical lines or bars. The top of the line represents the highest price during that time period. The bottom of the line represents the low. A short horizontal bar on the left side indicates the opening price and a short horizontal bar on the right side indicates the closing price.

That’s why the bar charts also called OHLC charts. It stands for open, high, low and close.

- Third type of charts is candlestick chart

Forex candlestick charts show all of the same information as a bar chart, but presented in a different way which most people find easier to read at a glance.

Like bar chart candlestick shows the price movement in vertical direction. The same way as for bar the top of the candlestick is the high for the period and the bottom of the candlestick is the low of the price for the period. However the major difference is the body. Different color of the candlestick body represents the different tendency of the price withing the given period. The common colors are red for falling price and green for rising. However different charts may use different colors.

The reason many traders prefer candlestick charts is that it can be read and interpreted easily. Trend and turning points are clearly seen due to color difference.

Successful traders always take advantage of emerging trend. You probably heard the famous expression ‘Trend is your friend’. Therefore the ability to recognize the forming trend is of the major importance of trader’s success. Candlestick chart is a great tool in helping to develop this skill.

Source: Albert Schmidt

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1. Trend Traders

These traders attempt to buy a stock that is going up and hold onto it until it starts going down. The best part about this strategy is that it takes a relatively short amount of time to manage it. Trend traders could be in a stock for days or years, depending on how well the stock is doing, the idea here is, why kill a good thing.

2. Swing and Day Traders

Both swing and day traders attempt to catch the short movements in the stock market. It involves being much more active in your account and having to pay closer attention to patterns and other short term indicators. The great thing about these strategies is that you make a profit or loss fast and it can add up over time.

3. Option Trading

Similar to swing trading option trading attempts to make money from the stock market in a short term time period. The only difference is that with options you have the potential to explode your profits. A relatively small move in the price of the stock could mean a huge move in the option.

4. Option Seller

Option sellers on the other hand attempt to sell options that they believe will become worthless over time. This way they collect the premium up front and when the option hopefully expires in the future they are in no obligation to do anything. Option sellers do not attempt to hit the huge home runs, but try to make a good return over time by compound interest. These are the most popular ways to trade stocks. All traders will have to find out which strategy fits them the best.

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Online day trading requires good dependable equipment. A good computer for trading, with a memory capacity of 1024mb RAM is required. Experts are divided about the number of monitors required for this activity. Some believe that 2 -3 monitors are needed for effective online transactions while others believe a single large size monitor is sufficient. A high speed broadband internet connection is required for speedy inflow of real time quotes and charts. A good UPS or unlimited power supply is also required for effective trading at the computer. Direct access software will help the trader to place orders and get the orders executed faster.Online day trading requires a good broker who gives instant information.

The online platform of the broker should be dependable and all services should be instantly accessible. Access to the account of the trader should be easy and the response should be quick and efficient. The trader should be able to place orders and get results before the market closes. The website of the broker should be easy to use and constant updates should be available to the trader. The broker should execute orders instantly with small margins and low spreads. All transactions should be secure online transactions that are encrypted and password protected.

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The 50 simple moving average, or 50 SMA, is simply the sum of the last 50 values for each period, divided by 50, this is a moving window, as time moves on so does the average. Notice that I used the word period because this indicator works on any time period in exactly the same way.

It can be used on monthly, weekly, daily, hourly, 30 minutes, 15 minute and on whatever time period you want to monitor and trade. Although the SMA is the most commonly used there is also the exponential moving average or EMA. This is a weighted version of the formula using the mathematical exponent function to give more weight to the more recent values, this has the effect of making it a slightly faster average that many traders prefer.

The truth is that it probably does not matter if you used the SMA or the EMA, what does matter however is that you use one or the other and then be very consistent with it. Do not switch between them, it is more important that you trust your chosen indicator then a slight difference in its value.

The SMA is often used to determine what the trend of the stock is, depending on the value used it could be a short term, medium term or long term trend. An important point to note is that moving averages are most useful when the stock is trending, if the moving average is flat, i.e. horizontal on your chart it can become very choppy, this is a good time to stay out of the market.

The general rule is that if the current price is above the SMA the trend is up, if below the trend is down. This is very important to understand because it forms the basics of trend trading and trading with the trend.

For the short term trend many traders like using a 5-8 SMA or EMA, here is a trading secret, never trade again the direction of the short term tend, actually this is really just common sense when you think about it.

Moving averages can often act as support or resistance, many traders use the 15, 21 or 30 SMA for this purpose.

There are a number of other very important moving averages that you need to know about, these are the 50, 100 and 200 SMA, and this mainly applies to the daily and weekly charts. A lot of big players in the markets, the mutual funds, investment banks etc use the 50 and 200 SMA as support and resistance, if they decide to buy or sell based on these you need to follow suite, the 100 to a lesser extent.

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1. Investing With Knowledge

Don’t do anything until you know what you are doing. – Jimmy Rogers

Do

The knowledge in this context doesn’t mean you need an educational degree in finance and economics to invest in the markets. It means learning about the potential markets you are interested to invest in. Knowing and understand them before you put money into the markets.

Don’t

Doesn’t realise that a deep understanding of what he is doing is an essential prerequisite to success. Rarely realizes that profitable opportunities exist within his own area of expertise.

2. Predefined Trading Plan

The secret is for a trader to develop a system with which he is compatible. – Ed Seykota

Do

Has developed his own investment philosophy which is suited to his own personalities and objectives. As a result, no two investors in the market trade in the same manner.

Don’t

Has no plan, uses other people’s system without own’s research. Do not have his own investment philosophy. What it happen is that you see the person change from one systems to another, and failing to understand the importance of writing a plan.

3. Researched And Tested Strategy

If I’m interested company, I’ll buy 100 shares of all its competitors to get their annual reports. – Warren Buffett

Do

Developed and tested one’s strategy for the pass 5 to 10 years to determine the viability of the systems. Characteristics of the systems are also understood before one put real money into investment strategy.

Don’t

Has no system. Or has adopted someone’s else’s without testing and adapting it to his own personality. (When such a system doesn’t work, he adopts another one blindly. Which doesn’t work for him either.)

4. Capital Preservation

If you don’t bet, you can’t win. If you lose all your chips, you can’t bet. – Larry Hite

Do

First priority is to ensure your investment equity can survive and invest for another day. The market will always be there as long as your investment equity is available. If you protect your money and make it the number one priority in investment, you can survive long enough in the market to profit from the opportunities.

Don’t

Investment aim is “to make a lot of money.” As a result, failed to keep them.

5. Follow His Investment Plan

For me, it’s important to be loyal to my system. When I’m not… I’ve made a mistake. – Gil Bake

Do

Stick to his rules with discipline as long as its within the boundaries stated in his system plan. The fact is most investments do not win all the time. As investors, we need to be aware that there is drawdown period for any investment strategy.

Don’t

Lack of discipline to follow the rules as layout in the trading plan. (When such a system doesn’t work, he adopts another one. Which doesn’t work for him either.)

6. Learnt From Mistakes

One learns the most from mistakes, not successes. – Paul Tudor Jones

Do

Always treats mistakes as opportunities to improve oneself and never commit the same mistake again. An investor will never stop learning.

Don’t

Blame, justify and give excuses about the systems, people or circumstances that are at fault. While overlooking that he can improve his trading results if he identified them as mistakes and learnt from them.

7. Almost Never Talks to Anyone About What He is Doing

My idea of a group decision is to look in the mirror. – Warren Buffett

Do

Not concern about what he’s doing. Not interested or concerned with what others think about his investment decisions.

Don’t

Always asking for people’s opinions and finding the latest ‘Hot Tip’

8. Be a Risk Averse Investors

Do

Believe that risk can be managed, and always be prepared to beat a hasty retreat.

Don’t

Thinks that big profits can only be made by taking big risks.

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For a number of reasons, the three charting methods pale in comparison with the candlestick charting. Candlestick charting has unique and inherent advantages over the other charts. You can understand what’s going on with the price of a currency pair with a simple glance on the candlestick charts. One of the best features of candlestick charting is its visual appeal and readability.

You can get a sense of how the price is trending with the candlestick charts. You can easily spot the opening and closing price of a currency pair on a candlestick charts. You can also tell whether the buyers or sellers have dominated a given day. These price levels can be an important area of support and resistance for a given day.

Why should traders choose candlestick charts over other types of charts when analysing price action of currency markets? Candlestick charts feature specific patterns that you can identify and use to decide when its best time to buy, sell or wait on a trade.

Currency traders or for that matter other traders too, need easy to read charts that allow them to make quick decisions and efficiently analyse price patterns in the markets. Candlestick charting offers those benefits and many more. The need for a consistent and dynamic charting method is more important than ever. Trading is becoming more and more complex. The following four pieces of information are combined to make a candlestick:

Price on the Open: The price at which a particular currency pair opens on a given period is the first piece of information used to create a candlestick.

High Price: The top of the candlesticks wick corresponds to the highest price reached during that given period.

Low Price: The bottom of the candlesticks wick corresponds to the lowest price that a currency pair reaches during a period.

Closing Price: The closing price of the currency pair at the end of a given period is the last piece of information used to create a candlestick. Depending on the price action, the closing price can be the top edge of the candles body if the price action is bullish. It can be the bottom edge of the candles body if the price action is bearish.

Candlesticks that represent bearish price action appear black. Candlesticks that represent bullish price action appear white on the chart. By looking at the candlestick charts than you can by looking at another type of charting tool, you can gain far more insight into a periods trading.

You can tell right away that the up day has a white candle. Similarly the down day has a black candle. That simple difference alone clearly reveals the nature of price action that took place during that period and can be very helpful to you.

Candlestick charts quickly clue you on the type of buying and selling that’s been going on during a given period. Candlestick charting also tell you where it may occur again. In many cases, the buyers continue to buy and sellers continue to sell during subsequent periods.

Source: Ahmad Hassam

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Trading Psychology

The psychological aspect of trading is extremely important, and the reason for that is fairly simple. A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can’t get in the way.

Understanding Fear

When a trader’s screen is pulsating red (a sign that stocks are down) and bad news comes about a certain stock or the general market, it’s not uncommon for the trader to get scared. When this happens, they may overreact and feel compelled to liquidate their holdings and go to cash or to refrain from taking any risks. Now, if they do that they may avoid certain losses – but they also will miss out on the gains.

Traders need to understand what fear is – simply a natural reaction to what they perceive as a threat (in this case perhaps to their profit or money-making potential). Quantifying the fear might help. Or that they may be able to better deal with fear by pondering what they are afraid of, and why they are afraid of it.

Also, by pondering this issue ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotion. Of course this may not be easy, and may take practice, but it’s necessary to the health of an investor’s portfolio.

Greed Is Your Worst Enemy

There’s an old saying on Wall Street that “pigs get slaughtered”. These little pigs want more and more. This greed in investors causes them to hang on to winning positions too long, trying to get every last tick. This trait can be devastating to returns because the trader is always running the risk of getting whipsawed or blown out of a position.

Greed is not easy to overcome. That’s because within many of us there seems to be an instinct to always try to do better, to try to get just a little more. A trader should recognize this instinct if it is present, and develop trade plans based upon rational business decisions, not on what amounts to an emotional whim or potentially harmful instinct.

The Importance Of Trading Rules

To get their heads in the right place before they feel the emotional or psychological crunch, investors can look at creating trading rules ahead of time. Traders can establish limits where they lay out guidelines based on their risk-reward relationship for when they will exit a trade – regardless of emotions. For example, if a stock is trading at $10/share, the trader might choose to get out at $10.25, or at $9.75 to put a stop loss or stop limit in and bail.

Of course, establishing price targets might not be the only rule. For example, the trader might say if certain news, such as specific positive or negative earnings or macroeconomic news, comes out, then he or she will buy (or sell) a security. Also, if it becomes apparent that a large buyer or seller enters the market, the trader might want to get out.

Traders might also consider setting limits on the amount they win or lose in a day. In other words, if they reap an $X profit, they’re done for the day, or if they lose $Y they fold up their tent and go home. This works for investors because sometimes it is better to just “go on take the money and run,” like the old Steve Miller song suggests even when those two birds in the tree look better than the one in your hand.

Creating A Trading Plan

Traders should try to learn about their area of interest as much as possible. For example, if the trader deals heavily and is interested in telecommunications stocks, it makes sense for him or her to become knowledgeable about that business. Similarly, if he or she trades heavily in energy stocks, it’s fairly logical to want to become well versed in that arena.

To do this, start by formulating a plan to educate yourself. If possible, go to trading seminars and attend sell-side conferences. Also, it makes sense to plan out and devote as much time as possible to the research process. That means studying charts, speaking with management (if applicable), reading trade journals or doing other background work (such as macroeconomic analysis or industry analysis) so that when the trading session starts the trader is up to speed. A wealth of knowledge could help the trader overcome fear issues in itself, so it’s a handy tool.

In addition, it’s important that the trader consider experimenting with new things from time to time. For example, consider using options to mitigate risk, or set stop losses at a different place. One of the best ways a trader can learn is by experimenting – within reason. This experience may also help reduce emotional influences.

Finally, traders should periodically review and assess their performance. This means not only should they review their returns and their individual positions, but also how they prepared for a trading session, how up-to-date they are on the markets and how they’re progressing in terms of ongoing education, among other things. This periodic assessment can help the trader correct mistakes, which may help enhance their overall returns. It may also help them to maintain the right mindset and help them to be psychologically prepared to do business.

Bottom Line

It’s often important for a trader to be able to read a chart and have the right technology so that their trades get executed, but there is often a psychological component to trading that shouldn’t be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.

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1) The Thrill of Gain – While this often masquerades as a passion for markets, a little observation reveals that these traders have little interest either in markets that they don’t trade or in markets while they are not trading. The interest in market action often reveals addictive patterns, in which the roller coaster rides of gains and losses become more valued than the achievement of a smooth, upward sloping equity curve. This leads to overtrading and painful emotional ups and downs.

2) The Need for Independence – These traders are drawn to markets because they don’t want to have to answer to someone else in a structured job. The problem with this pattern is that the very need for independence that leads people away from structured careers also leads them away from the kind of structured practice and preparation that are necessary for trading success. Just as these traders don’t want to be tethered to a 9-to-5 career, they rebel against being tethered to markets. This shows up as poor discipline, poor preparation, and difficulty sustaining even modest efforts at performance development (such as keeping daily journals).

3) The Need to Make It Big – Many traders try to use performance in the markets, not as an expression of their competence, but as a desperate attempt to prove it. They don’t feel successful in other endeavours and are using markets to try to be a success in life. As a result, most of their self-esteem eggs are in the trading basket. That becomes threatening and stressful when inevitable trading slumps occur. Worse still, such traders often feel a need to make more and more to fill the hole of lacking self worth, eventually leading them to take too much risk and blow up.

What is the common theme among the three groups of traders? They are using trading to act out (and try to resolve) personal issues that are separate from risk/reward and opportunity in markets. Their needs lead them to place trades more for psychological reasons than logical ones.

Source: Brett Steenbarger

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Both trading and investing, after all, are at the most simple of levels application of capital in the pursuit of profits. If I buy XYZ stock I expect to either see the price appreciate or earn dividends perhaps both.

What separates trading from investing, however, is that generally in trading one has an exit expectation. This might be in the form of a price target or in terms of how long the position will be held. Either way, the trade is seen to have a finite life. Investing, on the other hand, is more open-ended. An investor will buy a company’s stock with no predefined notion of when he or she will sell, if ever.

We can use examples to help demonstrate the difference. Warren Buffet is an investor. He buys companies which he sees as somehow undervalued and holds on to his positions for as long as he continues to like their prospects. He does not think in terms of a price at which he will exit the stock. George Soros is (or at least was while he was still actively running his hedge fund) a trader. His most famous trade was shorting the British Pound when he thought the currency was overvalued and ready to be withdrawn from the European Exchange Rate Mechanism. The position he took was based on a specific circumstance. Once the Pound was allowed to float freely, and quickly devalued in the market, Soros exited with a handsome profit. That meets the criteria of having a predefined exit, making it a trade, not an investment.

There is another way one can define trading as set against investing, though. It has to do with the manner in which the applied capital is expected to produce a return. In trading the appreciation of capital is the objective. You buy XZY stock at 10 expecting it to go to 15 and thereby produce a capital gain. If dividends or interest are paid out along the way, that is fine, but likely only a minor contribution to the expected profits.

In contrast, investing looks more toward income over time. That makes income production, such as dividends and bond interest payments, the major focal point. Do investors experience capital appreciation? Sure, but unlike in trading, that is not the prime motivation.

With these definitions in mind, consider what many people refer to as their single biggest investment their home. Based our second definition of investing, however, a home is generally not an investment because in most cases is does not produce any income. In fact, it produces considerable expenses in the form of mortgage interest payments, utility bills, and upkeep. If anything, a home is a trade. We buy it and hope for its value to rise over time, increasing our equity. And the fact that many people expect to move in only a few years and sell at that point makes it even more of a trade rather than an investment. (Of course own rental property can certainly be viewed as investing, unless one is flipping it, which would definitely be more trading.)

As noted earlier, for many people trading and investing seem like the same thing. The mechanics of buying and selling are basically the same. Sometimes the analysis one does to make those decisions is identical as well. Its the intention and definition of objectives which separate trading and investing, though.

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Reviewing Wien’s 2009 list, he was very accurate with the direction of most of his predictions.

He foresaw a second-half recovery in the US economy, and the S&P 500 Index rising to 1,200 (up from 903 at the end of 2008 to 1,115 by December 31, 2009). He also predicted: “The ten-year US Treasury yield climbs to 4% [up from 2.24% to 3.84%]. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.” Spot on.

Wien also expected the gold and oil prices to climb to $1,200 and $80 respectively – a feat accomplised in December.

He believes his ten surprises have at least a 50% chance of occurring at some point during the year. Although this is not a very high probability, his predictions nevertheless make for stimulating reading. His list for 2010 follows below.

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. Exports, inventory building and technology spending lead the way. Standard and Poor’s 500 operating earnings come in above $80.

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end.

3. Heavy borrowing by the US Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. Obama says, “The suits are finally listening”.

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain.

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020.

8. The improvement in the US economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the US market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the US and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.

Source: PR-inside.com

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Rule 2: Don’t be seduced by results. You must stay in the present and focused on executing each trade to the best of your ability. Don’t let yourself think about how much you’re going to win (or lose) in the market or how great of a trader you are or not, but instead focus on what matters most – each and every trade you make. Do that and the results will take care of themselves.

Rule 3: Sulking won’t get you anything. The worst thing you can do for your prospects of winning is to get down when things don’t go well. If you start feeling sorry for yourself or thinking the trading gods are conspiring against you, you’re not focused on the next trade. Good traders readily accept their mistakes and move on to the next trade. They don’t let one bad trade carry onto the next one.

Rule 4: Beat them with patience. Every time you have the urge to make an aggressive trade, go with the more conservative one. You’ll always be OK. The moment you get impatient, bad things happen. In tough markets, stay patient and let others beat themselves.

Rule 5: Ignore unsolicited advice. You’ll have lots of well-meaning friends and experts who want to give you advice. Don’t accept it. In fact, stop them before they can say a word. Their comments will creep into your mind when you are trading and conflict with your own strategy. If you’ve worked on your game, commit to the plan and stay confident with it.

Rule 6: Embrace your personality. The key is to find what works best for you. There are many approaches out there, but there is only one trading approach that will utilize your best skills and talent to create and sustain an edge. The worst mistake you can make is to simply embrace a strategy of someone else that doesn’t match your own personality and strengths.

Rule 7: Have a routine to lean on. Every trader should follow a mental routine on every trade. It keeps you focused on what you have to do, and when the pressure is on, it helps you manage your nerves. You may not have control over the market, but you have control on how you trade the market. Having a routine will inject consistency that will keep you calm under pressure.

Rule 8: Find peace in the market. The market has to be your sanctuary, the thing you love, and you can’t be afraid of making mistakes. Yes, you’ll experience both good and bad times, but you must enjoy and revel in the challenge.

Rule 9: Test yourself. Don’t look for easy trades and setups at all times. Test yourself by working hard trades and difficult markets in order to test and improve your skills. For example, if you’re uncomfortable with trading options, spend a month just trading options. If you’re uncomfortable with shorting stocks, spend a month shorting stocks. We only get better if we constantly test what we think is most difficult.

Rule 10: Find someone who believes in you. Having confidence in yourself is important, but it helps to have someone who believes in you, too, whether it’s a spouse, a friend, a teacher, or a mentor. No man’s success can be entirely attributed to his own actions. You must surround yourself with people who believe in you at all times.

This is a powerful set of trading rules that will serve you well.

Source: Damien Hoffman

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Loss of discipline is the most common concern of traders who seek psychological assistance. But equally important, if not as recognized, is the related tendency to not listen to oneself. So many times, we *know* what we should be doing and do not act. Sometimes out of second-guessing ourselves, sometimes out of fear, sometimes out of listening to others rather than ourselves. We know–and at some level we even know we know–but we don’t listen to that knowledge. This creates a double consequence: a missed opportunity, but also a loss of confidence. It is difficult to sustain confidence in our judgment if we routinely engage in cognitive self-betrayal.

After the hard work of analysis is done–we’ve performed the research, read the news reports, observed the charts, talked to colleagues–it remains for the mind’s implicit mode to perform the synthesis. Without the data that come from long hours of observation, the mind has nothing to synthesize: we need to first see many patterns before we can recognize those patterns in real time. But if we do not listen to ourselves–if we remain stuck in analysis, or if we entertain so much mental noise that we cannot hear our syntheses–the many hours of learning are lost.

Many gurus would have you listen to them for guidance. The only real wisdom, however, comes from listening to yourself.

Source: Brett Steenbarger

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Two emotions fear and greed can be lethal to your financial success. Developing an unemotional, systematic approach to your trading and investments is crucial for success. The following ideas will help you control your emotions and improve your trading results.

Develop a Trading System

Many people approach the market in a very unsystematic fashion. One day they are buying blue chip stocks that pay dividends; the next day they are playing tips from their nephews on biotechnology start-ups. Develop a system that suits your personal style, risk tolerance, knowledge level, and time available to devote to this activity. Decide what market you will trade and exactly how you will trade. Simply saying I will buy and sell stocks is not a trading system. Write down your rules. For example, for a stock investor, what criteria will stocks meet for your consideration? At what price will you buy? Will you short stocks? Where will you set your stop loss price? How much will you invest in any single position? How much will you diversify among industry sectors? Will you rotate in and out of sectors as they fall out of favor with the markets? Wherever possible, back test your rules and ensure your system has a reasonable expectation of profitability.

Have a Written Plan for Every Trade

Before you buy that stock or option spread or other investment, you must make some critical decisions. Write down your answers to the following questions: Why do I think this is a good idea? At what price will I admit my idea is not working and close the trade? If appropriate for this trade, at what price will I make some adjustments to the position? At what price will I take my profits? The answers to these questions and others constitute your trading plan. Be sure you have a plan before you establish the trade.

Follow Your Plan

This may be the hardest aspect of trading you must master. Once you have your plan, you must have the discipline to follow the plan unemotionally. Don’t allow yourself to rationalize how the stock is going to rebound or allow your ego to refuse to admit the mistake. When the stock price dips below your stop loss price, close the position.

Don’t hope. Don’t rationalize. Follow your plan.

Evaluate Your Results

Develop a routine of reviewing your trading results periodically. When I review my trades each month, I make an important distinction between my “losing trades” and my “bad trades”. Bad trades result when I break my own rules for entering the trade or lack the discipline to follow the plan. Losing trades are those where I followed all of my rules, but the trade just didn’t work out as planned. These losses are simply a “cost of doing business”. It is critical to treat your investing as a business, not a hobby. In any business, there are necessary expenses to keep the business open. Trading losses are an expected, necessary part of any investment activity. Developing a trading system and following the individual trade plans ensure that your profitable trades will outweigh your losses.

This Isn’t Gambling

A common misperception holds that investing is akin to gambling. In fact, when you closely analyze the actual trades of many investors, they are indeed gamblers. They are following tips and hunches, investing large amounts on expected turnarounds, anticipating mergers, betting on start-ups, and so on. But consider the business of gambling – not the gambler, but the casino. The casino establishes a game where the casino holds a statistical edge; depending on the game, that edge may be rather small, of the order of 1-2%. The casino owner knows that he may have a big winner today at one of the blackjack tables, but that doesn’t concern him because he knows he has an edge. When averaged over all of the different players and games, and over the long term, the casino will come out ahead.

When you work hard to develop the knowledge of the market you are trading, develop a trading system, have a written plan for every trade, follow your plan with great discipline, and learn from your mistakes, you have positioned yourself as the casino owner, not one of the customers.

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The most common mistake is there are many traders who have a perfectly acceptable strategy, but consistently find themselves straying from it in order to chase what is hot in the markets. It’s not enough to have a strategy — a trader must refrain from getting away from it when tempted by greed. There are thousands of trading strategies that will work consistently, but all of them will fail without the discipline to stick to them. Trading is more about discipline and consistency, and less about fancy trading systems. A trader will usually be successful so long as they have a method to cut their losses quickly and maximize their profits on winning trades.

2) Ignorance of time frame. This mistake can probably be rolled up into Mistake #1, but is important enough to mention on its own. Knowing your time frame goes beyond what time frame charts you look at for trading. The first thing a trader needs to know is what they are trying to accomplish with a trade. While making money is the obvious answer, I’m talking about determining what move a trader is trying to capture. Often, a trader focuses his entire attention on getting into a trade. He or she has little regard for how they will get out of the trade. This usually leads to wavering back and forth on when to exit. Traders need to know how long they will be in a trade and what they are trying to accomplish. Otherwise, the markets dictate how they will exit. Traders need to define what part of a trend they are trying to capture, then act accordingly. While the signals don’t have to be defined to the point of being mechanical, traders should have a clear and definite direction they are taking in a trade.

There are several different trading styles out there — from scalping a tick chart, to position trading off weekly charts. For instance, if you are trading to capture a several day trend, then your target and stop loss should complement that objective. I often see traders say they are trying to capture a multi-day move. They leave an open-ended target, then panic on an intraday pullback. While there is nothing wrong with leaving an open-ended target, traders need to be willing to suffer through a pullback if they are trying to let a trend run its course.

Too often, I see traders entering trades with no real ultimate target and no clear understanding of how to identify when they are wrong in the trade. Stop losses are intimately tied to targets, yet this is an area which confuses many traders. Many traders also mix up their time frames once they are in a trade. Basically, if you’re going to scalp, then scalp and scale or get out on strength. Don’t worry about missing a continuation move that falls out of your time frame. First of all, this wasn’t your planned trade. Second, as humans we tend to have a selective memory. We tend to discard the myriad of times when holding would have been unsuccessful. If you are a trend follower position trading, it makes more sense to trad without a target and keep a very loose trailing stop. Otherwise you will not allow the trend to unfold. Many traders don’t realize their objective, then set incompatible exit orders. While traders don’t need to lock themselves down to a specific time frame, every trade setup in their arsenal should attempt to capture a well defined movement.

3) Thinking about what is supposed to happen instead of focusing on what is happening. Recently, I’ve seen traders fighting the tape on the entire rally off the March lows. I’ve seen very smart individuals going to cash because they can’t see how this rally can be for real with the economic picture so bleak. Many traders are crying foul, saying the government is manipulating this or that, fudging employment data, economic reports, etc. I don’t know if any if that is true, and I don’t really care. I’m not a naïve person. I understand there is a certain amount of manipulation and unfair trading practices that exist. However, I also believe that this behaviour is prevalent in any industry/activity where large amounts of money is involved. Greed is one of the most powerful emotions we have as humans — probably rooted deeply in our survival instincts. There will always be corruption and manipulation in the financial markets. However, this should not stand in the way of any trader stepping in and making money. It’s okay to feel however you want, but in the markets only price pays. The old Jesse Livermore quote says it perfectly: “There is only one side to the stock market; not the bull side or the bear side, but the right side.”

Traders should learn to focus on what is occurring in the markets and try to remain objective. While there is nothing wrong with using your intuition and intelligence to uncover possible themes or trading scenarios, traders should also remain objective and let the markets either agree or disagree with their thesis. It makes no sense to throw up your hands and let the markets run you over because they disagree with your beliefs.

In summary, the cure for most trading mistakes is to have a plan for dealing with whatever the markets throw your way. Once you have a plan you will not react to the markets. Instead you will proactively trade a well thought out plan.

Source:Joey Fundora

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What I can lose on a given trade is always more important to me than what I can make. Most new traders will make a purchase or initiate a short position, but when the trade turns against them, they immediately forget why they bought or shorted the stock. As a result, they will let “hope” take over as their new strategy. Hope is not a strategy! Take your medicine and accept defeat when you are on the wrong side of a trade. Great traders have tough skin and move on.

The solution for this problem is to use stops. I always use stops when I trade. The percentage you are willing to lose will be a direct by product of your own risk tolerance — but use them always. I use approximately a 2% stop on all my trades (sometimes less).

2) Using Multiple Approaches or Strategies. Many new traders think they have a strategy … until they don’t. They feel they are comfortable with an approach, but at the first sign of failure they stray. Thus, they become aimless and reckless. Before they know it they are trading rumours, chasing stocks, and ultimately blowing up their account (before they have any real success at all).

New traders will “over trade” or do what I call “revenge” trading right after a loser. Revenge doesn’t work in the market and the only person that benefits from over trading is your broker. I have one strategy I use. Is it the only strategy that works? Definitely not. As a matter of fact almost every trader I know uses their own approach. Some strategies are proprietary systems. Some are plain vanilla strategies that are very basic in nature. The point is have a plan and an approach! So, learn one thing and be the best at it. There is way too much “noise” out there in the new and old media. Everyone claims to be a bull or bear market genius. Put the media on mute so you can follow and perfect your plan.

Being a voracious learner is absolutely key. Be a sponge and learn as much as you can. If you are a day trader, use the websites and read the books that will help you become the best. There are some phenomenal trading blogs out there. Most information is a click away.

3) Trading Too Large. I ran a sizable hedge fund and thankfully always beat the indices in good or bad markets. Much of my initiation and experience was baptism by fire. But if a novice trader asked me the one thing he or she should do to get a feel for the market, I would tell them to paper trade or use very small dollar amounts. There is absolutely no substitute for “screen hours.” Tiger Woods hits five hundred to a thousand balls a day, and he is already the best in the world. If trading is truly your passion, then be in front of your trading screen all day. If I miss twenty minutes of trading because I am out of the office, I genuinely feel like I missed the whole day — my rhythm is gone and my edge becomes diminished. You may be able to get away with less screen time if you are a longer term investor. But if your passion is perfecting the short term trading game, you won’t stand a chance. Good luck out there and don’t listen to the pundits.

Source: Joey Fundora

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5. Traders Tip

1. Make journals a part of the daily routine – Even if you don’t trade on a particular day, it is valuable to review the day’s setups and behaviour at key price levels. Reviewing patterns on different time frames can also help traders internalize the context of the markets they are trading, as well as the interrelationships among those markets. The French scientist Louis Pasteur observed that, in matters of observation, “chance only favours prepared minds”. Replaying market days, reviewing your own performance, and identifying missed opportunities prepares you for future performance, as your increasing familiarity with trading patterns sensitizes you to them in real time.

2. Incorporate specifics in your journals – If I had to identify the single most common shortcoming among trading journals, it would be their absence of detail. Entries such as, “I lost my discipline; I have to be more patient,” might be nice as post-it reminders, but are inadequate as journal entries. Journals need to clearly state what happened, your assessment of why it happened, and the specific steps you intend to take to deal with the situation in the future. A good rule is that anyone reading your journal should be able to identify and follow the exact same steps that you intend to take in the future. Your journal should be a planning document, not a statement of intentions.

3. Wherever possible, review your journal entries with a valued colleague or mentor – When I established a training program for new traders, one of my first steps was to insist upon daily review of trading journals. This required me to create a trusting and constructive environment, so that traders would be honest in their entries. Once that openness developed, the daily reviews became proactive planning sessions (usually shortly before the start of the trading day) that addressed issues before they could damage the profit/loss statement. Even more important, the daily review created expectations of accountability, as traders knew that my inevitable question would be, “How did you do with your goals for the day?”

4. Use journals to review positive trading performance, as well as problems – The number two shortcoming among journals is their focus on problems to the exclusion of solutions. If journals become a mere recounting of one’s flaws and inadequacies, traders will inevitably lose interest in them. Traders can learn as much from what they do right as from their errors. My favourite instruction to new traders is to highlight in their journals one thing that they did right the previous day that they want to replicate today and one thing that they could improve upon in today’s trading. This forces traders to stay in touch with their strengths, as well as their failings.

5. Each journal entry should include material about the markets and material about the trader – It is not unusual for traders to emphasize one at the expense of the other. The core concept I stress with traders is that of pattern recognition. Traders display patterns in their behaviours: some of these are positive; others interfere with profitability. Markets enact their patterns as well; it is the trader who can see these as they emerge and act quickly that has the best chance of long-term success. Including material about trading patterns and traders’ patterns makes the journal a learning tool about oneself and the markets.

The best trading journals I have observed have been ones that are creative and rigorous. Here are the two most important steps I believe you could take to turbo charge your journal:

1. Make it a multimedia project – Writing a journal in diary form is good, incorporating annotated charts is better, but including video is best of all. Programs such as e-Signal allow you to take screen captures of the market at any time of the trading day and also allow you to replay market days and review their unfolding. Better yet are desktop video programs such as Camtasia that create highly compressed video files of your desktop activity. This allows you to capture the day’s trade in its entirety, which you can then annotate by adding a voice track. Ninety percent of pattern recognition is repetition: seeing enough variants that you become sensitive to essential and inessential features. While static charts are better than nothing, they do not capture the unfolding of patterns: the very thing that traders need to be able to recognize and act upon. Videos provide the opportunity to see patterns over and over again, accelerating the recognition process. Multimedia journals also actively engage the trader and allow traders to process markets via multiple modalities (images, sound, text, etc.). Educational research tells us that learning is most likely to occur when learners are actively involved in the acquisition of knowledge and skills. An engaging, multimodal journal is apt to be a better learning vehicle than a dry diary.

2. Incorporate metrics – I could write a book on this topic. It is absolutely amazing how much more traders can get from their journals if they include basic statistics about their performance. Trading tendencies that escape normal notice suddenly stand out when summarized statistically. Areas for work and areas of improvement also stand out. With statistics, we can not only say that a trader made improvement, but can actually measure that improvement and track it over time. Such statistics capture improvements that will eventually show up in the profit/loss statement, but which may not be immediately evident.

Here are my favourite trading metrics for active traders:

* Number of winning, losing, and scratched trades;

* The average size of winning and losing trades;

* The average holding time per trade, and the average holding time broken down by winning, losing, and scratched trades;

* The number of winning, losing, and scratched trades broken down by long and short positions;

* The number of winning, losing, and scratched trades broken down by time of day;

* The average holding time per trade for long and short positions and broken down by time of day;

* The number of winning, losing, and scratched trades for days categorized as uptrending, downtrending, and neutral;

* Daily profit/loss, also broken down for days categorized as uptrending, downtrending, and neutral;

* The sequences of winning and losing trades during a day and from day to day;

* The largest winning and losing trades during a day and during a week;

* The largest winning and losing days during a week and during a month.

Less frequent traders can keep these statistics manually. Very active traders will benefit from programs that automatically capture trade data and summarize performance, such as Trader DNA (www.traderdna.com). The data provide very helpful benchmarks that allow traders to diagnose problems and track improvement.

Here are a few of the areas for improvement that commonly emerge from statistical analyses of performance:

* Holding onto losing trades as long or longer than winners;

* Trading with a persistent long or short bias that is not supported by market trends;

* Significantly different profitability during morning vs. afternoon trading hours;

* The tendency to have strings of winning and losing trades;

* Significantly different profitability during different market conditions, such as trending markets or volatile ones;

* The tendency to give back the results of many profitable trades in a few large losing ones.

When you combine rigorous metrics with a multimedia journal, the result is the kind of ongoing quality improvement process that typifies the finest business organizations. The best trading journals are technologies for learning and self-improvement. This takes time, effort, and creativity, but the results are worth the investment.

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Get educated with all the basic fundamental elements and principles of the FOREX Market by getting an online FOREX Training course. Majority of those who fail miserably are those whose knowledge of the market is fairly limited in scope, or have none at all. Getting educated is just one step to having a successful career in currency trading, but it is by no means a guarantee to making sure profits.

Maximize Profits

• Learn how to maximize your profits by adopting various trading methods, and how it fits into your plans and expectations. Be familiar with the various systems applied by other traders to gradually get a basic knowledge of which system works for the various trading deals. Constantly scan for other trade deals done by large corporations, and banks since they are the ones mostly needing a continuous flow of currencies.

Be smart

• Learn and practice good Money and Risk Management skills to make trade decisions based on hard facts, not from emotion. In FOREX, values and rates are always fluctuating – so always keep your smarts on the alert in order to know when to buy or sell a currency. The technical aspects of currency trading is only as good as the trader whose interpreting it, so get a good understanding when to take a risk or when to let it pass by.

Learn as you progress

• Forex evolves in parallel to the developments and advancements of technology. Keep an open mind for new and updated methods and technologies to use in your daily trading activities. And never forget to keep abreast of free learning materials available on the Internet, as well as to read up on any news that might impact the industry.

Be disciplined

• Follow a system based on solid facts and data’s gathered from research, and tips from expert traders. Determine weak and strong points to make decisions based on a valid assessment. Keep a focused mind on your trading business at all times, and most importantly, always follow the rules and regulations of the trade, no matter what.

If you want to be on the winning side most of the time, and become a successful trader, you should follow these essential trading tips.

Source:Bart Icles

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1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas.

4. They all understand that when they get into a trade, they must have some idea of when they are wrong and will bail out.

5. They all evaluate the ratio of reward to risk in each trade they take. For mechanical traders, this is part of their system. For discretionary traders, this is part of their evaluation before they take the trade.

6. They all have a business plan to guide their trading. You must treat your trading like any other business.

7. They all use position sizing. They have clear objectives written out, something that most traders/investors do not have. They also understand that position sizing is the key to meeting those objectives and have worked out a position sizing algorithm to meet those objectives.

8. They all understand that performance is a function of personal psychology and spend a lot of time working on themselves. You must become an efficient rather than inefficient decision maker.

9. They take total responsibility for the results they get. They don’t blame someone else or something else. They don’t justify their results. They don’t feel guilty or ashamed about their results. They simply assume that they created them and that they can create better results by eliminating mistakes.

10. They understand that not following their system and business plan rules is a mistake.

Source: Charles Kirk

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Jesse Livermore, one of the best traders of all time, and John Paulson, one of the best traders of the last few years, both have a set of rules they follow religiously. Their success serves as your opportunity to enhance your investment savviness.

Jesse Livermore, one of the greatest investors of all time, has been featured in many investment books. The most popular was “Reminiscences of a Stock Operator” by Edwin Lefevre in 1923. During the course of his life he made and lost millions, going broke several times before committing suicide in 1940. These are his seven greatest trading lessons:

1.     Cut your losses quickly.

2.     Confirm your judgments before going all in.

3.     Watch leading stocks for the best action.

4.     Let profits ride until price action dictates otherwise.

5.     Buy all-time new highs.

6.     Use pivot points to determine trends.

7.     Control your emotions.

John Paulson, a hedge-fund manager in New York, led his firm to make $20 billion in profits between 2007 and early 2009. By betting heavily against first the housing market and then later financial stocks, his firm made a killing. Paulson’s success netted him a paycheck of some $4 billion, or more than $10 million a day. His funds during this time had returns of several hundred per cent.

Here are his eight investment lessons:

1.     Don’t rely on experts, be skeptical.

2.     Always have an exit strategy.

3.     Debt markets can do a better job predicting problems than stock markets.

4.     Always educate yourself on new investment vehicles.

5.     Don’t underestimate insurance (such as put options).

6.     Experience counts.

7.     Don’t fall in love with any single investment, keep emotions aside.

8.     Don’t risk too much on any single trade, diversify risk.

By applying any of the above fifteen lessons you can become a better trader. Success takes time, and these rules will lead you in the right direction.

Source: Investment Postcard

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Buffett’s top holding with a value of more than $11 billion, Coca-Cola (KO), is even outperforming the S&P 500 so far this quarter (5.66% to 4.41%).  Unsurprisingly, Buffett’s position in Burlington Northern (BNI) has done the best so far this quarter with a gain of 22.87%.  Buying one of your biggest positions at a nice premium is one way to boost returns!

Other big winners for Buffett this quarter have been AXP (+20.59%), COP (+18.7%), MCO (15.91%), IR (19.99%), NLC (18.2%), NSC (19.28%), and UNH (15.06%).  Ten of his 41 holdings are down so far this quarter, with USG down the most at -15.13%.

Source: Bespoken Research

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Risk and reward are always proportional. Those who understood that did not invest with Madoff.

A trader told me that he made a sizable six figures in a day of trading. Later, he wrote to me in a tizzy because he had lost six figures. Another one of my rules is that you should always trade small enough to comfortably weather five consecutive stop outs. If you trade enough, that series of losers *will* occur. Risk 10% of your capital in your trades and it’s Russian roulette: eventually you’ll come to that chamber that has the bullet of five consecutive losses.

If 20% of my capital is the maximum that I can countenance losing over time, I am going to trade smaller when I draw down 5%, smaller still when down 10%, and smaller yet when down 15%. As I’m trading worse, I’m risking less. I make it more difficult to hit my 20% threshold because I’m putting less capital at risk during drawdown periods.

Conversely, by risking a fixed fraction of my capital when making money, I naturally achieve greater risk/reward as I am trading well.

I know from experience that, at some point over time, I will draw down 10 times what I’m willing to risk on a single trade. If I risk one percent of my capital in a trade, I’d better be prepared to endure a 10% drawdown in capital at some point in the future. If I risk 5% of my capital in each trade, I’ll eventually lose at least half of my money. Probability and psychology guarantee slumps; wise traders plan for them.

So much of trading success is knowing how to lose.

Posted by Brett Steenbarger

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Stock Distributions

• Why Stock Markets Crash: Critical Events in Complex Financial Systems - Didier Sornette
  
• The Misbehavior of Markets by Benoit Mandelbrot
• Fooled by Randomness and The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
• Finding Alpha – by Eric Falkenstein
• Market Volatility – Robert Shiller
• Optimal Portfolio Modeling – Philip McDonnell
• Fractal Market Analysis - Edgar Peters
• More Than You Know: Finding Financial Wisdom in Unconventional Places - Michael Mauboussin
• The Failure of Risk Management: Why It’s Broken and How to Fix It – Douglas Hubbard

—————————————————————————————————————————————————————————–

Market Bubbles

• Manias, Panics, and Crashes by Charles Kindleberger
• Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay
• The Prize: The Epic Quest for Oil, Money, & Power by Daniel Yergin
• The First Tycoon: The Epic Life of Cornelius Vanderbilt by TJ Stiles
• Irrational Exuberance – by Robert Shiller

—————————————————————————————————————————————————————————–

History of Markets

• Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, and Mike Staunton
• Stocks for the Long Run by Jeremy Siegel
• Reminiscences of a Stock Operator by Edwin LeFèvre
• When Genius Failed by Roger Lowenstein
• Capital Ideas, Capital Ideas Evolving, and Against the Gods by Peter Bernstein
• Ibbotson Yearbook by Ibbotson Associates
• The CRB Commodity Yearbook by Commodity Research Bureau
• The Essays of Warren Buffett by Warren E. Buffett and Lawrence A. Cunningham
• Fortune’s Formula by William Poundstone
• The Myth of the Rational Market - Justin Fox

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What you are looking for is when the price action and MACD do not agree. For example, if the price is making a series of higher highs and MACD is making a series of lower lows, something is wrong between the two.

Most probably the traders are getting nervous and slowly fading out of their trades. MACD divergence is seen as a sign that fewer and fewer traders are in the trend. No one is trading against the trend and yet fewer and fewer traders are in the trend.

The only traders in the trend are nervous. They are likely to exit their trade at the first sign of trouble. So if MACD is diverging from the bullish trend. As soon as the bears muster up enough guts to short, the bulls will exit and the bears will take over.

There are two powerful keys in locating times when MACD divergence is likely to represent a reversal in price. This is exactly why MACD is so powerful. It takes time to setup but when it works, it often works well.

MACD divergence can be powerful when the price is at the double tops or double bottoms. You are making your trading plan based on the bounce or breakout of the support and resistance. At this point you spot MACD divergence. This is known as Exhaustion Pullback.

You should trade now based on rejection reversal. This is a sign that the price action is running out of steam. This indicates that there are not enough committed traders to break the support and resistance (S&R).

MACD is also used as an overbought/ oversold indicator or oscillator. Suppose you see that it has reached its overbought/ oversold range. The price action is turning normal. This is a signal that you should avoid trading at this time.

Dont think that the currency pair is overbought and everyone is buying. However, when the price reaches its extreme, you will see price exhaust and the MACD line drop back into normal zone. Dont confuse the overbought/ oversold MACD zones as trade opportunities.

It is also important to note that divergence can not only be found on the MACD line and the signal line, it can also be found on the histogram. These two situations along with your other technical indicators can provide excellent trading opportunities.

MACD on eBridge Trader

Source: Ahmad Hassam

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The SFE Futures down 17 overnight. BHP and RIO in ADR form overnight, BHP up 0.43% and RIO down 0.93%. BHP was down 1.74% and RIO down 0.82% in the UK. BHP closed at the equivalent of 3648c, down16c on last night’s close. Metals mixed on the LME Copper down 0.45%, Nickel down 0.97%, Zinc down 1.37% and Aluminium up 0.06%, Lead up 1.75% Oil price unchanged at $68.05. Gold price up strongly $22.00 to $979. Largest interday gains in 5 months. Bonds up - 10 year yield at 3.295% down from 3.375%. A$ up 83.39c versus 82.65c yesterday morning. CRB Commodities index up 0.26% VIX Volatility Index down 0.86% to 28.90

August FOMC minutes said the Fed still concerned about pace of economic recovery and continued challenges for the banking sector. Headline July factory orders just under consensus forecasts. Factory orders for July showed their sharpest increase since June 2008 by rising 1.3%, but that was still short of the 2.2% consensus increase that had been expected. The ADP Employment Change Report for August showed that 298,000 private jobs were lost last month. This was disappointing as economists were expecting 250,000 job losses. Unit labor costs for the 2Q were down 5.9%, which was slightly steeper than what had been expected. 2Q productivity spiked 6.6% in its biggest percentage increase since 2003. Market expectations were for an increase in productivity of 6.4%

The market is down 6. The SFE Futures were down 17 this morning. The Trade Balance has come in worse than expected. Now stands at $1.56bn compared to the $850m

expected.

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5. ASX200 Stock and CFD Report 17-09-09

All the same, fundamental analysis, virtually all of them at any rate, apply macroeconomic indices including prime rates of interest, economics, inflation, unemployment variations. If you think about it, the part of Forex fundamental factors that are involved in the shaping of currency movements.

Let’s consider the economic indicators. The reports are issued by private or governments with details of a country’s performance economically. The indices on the economics are issued annually, every quarter or even every month and are intermeshed around particular economic information. 2 basic factors are rates of interest and trade internationally. Additional factors are consumer durables orders, Consumer pricing Index (CPI), Purchasing Managers Index (PMI) and Producer Price Index (PPI).

The currency interest rates are fundamentally an economical function of all countries. When a nation interest rates ascend, unremarkably, the currency of that nation will fortify against another. Nonetheless, mounting rates of interest, for stock exchanges is sad news. It’s a truth a lot of investors remove investments from a country where the rates are going up.

An important factor, of course, is the International Trade. The balance of trade indicates the difference between exports and imports. A deficit might be an economic catastrophe for a countries currency and its government. A deficit could come at a time a country is importing more than exporting and means more currency is exiting than is entering that country. All thought, a deficit may not be a bad thing and only damaging when the deficit being larger than expectations in the market and will start unfavorable price movements.

A great deviation from forex technical drives past fundamental and is practised only to price action and forex technical analysis comprises of an diversity of forex technical disciplines. All one utilised to find the market direction. Technical analysis correlates the motions and consequences of prevailing markets and currency outlooks are short-run. Data acquired on a trading day determines the interest in the markets and informs forex traders of a bull market. The Forex technical analysis checks movement trends and brings about far-flung “trend is your friend” a phrase amongst Forex traders. The linchpin for maintaining a effective profit level is the selling and buying at the correct time and acknowledging when it is safe to enter or exit a position.

The basic principals of Forex technical is support an resistance which are the guiding points for a chart to depict recurring ups and down pressure. The low point is the support level an while the level of resistance is a high point in the pattern. During the resistance levels, buying and selling is the strategy by the veteran trader.

History frequently repeats itself and generally in the circumstance of price movements is a maxim of the technical analysis. The repetitive nature of price movements is oftentimes granted to the Forex marke psychology. Traders have a response to related inputs of the market in special periods of time. The technical analysis applies formulas to break down Forex movements within the market and translates the trends too.

In spite of this, numerous graphs have been and still are used nowadays and they still are considered genuinely relevant as they represent the price movement patterns often repeated. This should give you an approximation of the Fundamental and Technical Analysis and should be good for you once you are willing to commence your calling as an investor. Remember – never invest any money you have got or can’t risk to throw down the drain.

Source: John Eather

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Below we highlight 2009 estimated GDP growth for 21 countries.  As shown, only China and India are expected to actually grow in 2009, while the other countries are expected to contract.  China’s 2009 GDP growth estimate is at 7.66%, while India’s is at 4%.  The US is closer to the top of the list than the bottom with an estimate of -2.49%.  It ranks only behind Canada among other G-7 countries.  Japan and Germany are expected to see the biggest contraction in GDP in 2009 at -6.61% and -6.06% respectively.  The UK is at -3.74%, Russia is at -2.77%, and France is at -2.75%. 

Source: Bespoken Research

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2. Country P/E Ratios
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 1) Believe in Yourself – Williams broke into the major leagues with a brash confidence that turned off many people. When he was sent to the minor leagues, he informed the Red Sox’s starting outfielders that he would be back and would make more money than the three of them put together. We live up to our deepest image of ourselves; Williams experienced himself as a great talent long before the world recognized his hitting genius.

 2) Work Hard, Work Smart – Williams treated hitting as a science and learned his batting average for pitches placed in any given part of the strike zone. That enabled him to wait for good pitches and play to his strengths. How similar that is to trading, where the successful trader waits for the trades that provide an objective edge. “Proper thinking is 50% of effective hitting,” Williams asserted, emphasizing the importance of doing homework to learn the ins and outs of each opposing pitcher. 

3) Seek Success, Don’t Just Avoid Failure – In 1941, Williams went into the final game of the season with a batting average of .3996. His coach knew it would be rounded to .400 and offered to bench Williams to preserve his average. Williams insisted on playing, went 6 for 8 in a doubleheader, and finished the year with a historic .406 average. Recently I worked with a trader who was up by a very solid five figures late in the session. He saw an idea at the end of the day, put on size, and meaningfully added to his day. He was driven by a desire for success, not just an avoidance of loss.

So many of the qualities I see in great traders are exemplified by Williams. Great things happen when confidence leads to skill building, which leads to greater confidence.

Source: Brett Steenbarge

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http://video.google.com/videosearch?q=Million%20Dollar%20Traders

About

Million Dollar Traders – Make me a trader

Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund. Can they make a killing?

The experiment reveals the inner workings of a City trading floor. The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead.

The traders were selected in spring 2008, before the US credit crisis gathered pace. The successful candidates were chosen, trained and dispatched to their specially created trading room in the heart of the Square Mile. Among them are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper.

As the novices learn the dark art of trading stocks and shares, the financial markets start to buckle. Making money takes second place to basic survival as the brutal realities of global economics take their toll on the traders. How do they cope? Will they secure themselves a bonus, or walk away with nothing?

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• LGL has announced that it will write down the value of the Ballarat project by US$250-350M.
• The write down is attributable to the long-term production guidance for the project being lowered to 80-100kozpa.
• Production for CY09 has also been downgraded from ~50koz to 20koz.
• The downgrade of Ballarat’s long-term production is disappointing but is largely immaterial to our investment case for LGL.
• LGL offers excellent exposure to gold prices through its 100% owned Lihir Gold mine in PNG, which boasts 21.7Moz in reserve and 36.3Moz in resource.
• With the inevitable downgrade of Ballarat now a reality we believe the market will begin to focus on the production growth at Lihir and the excellent exploration potential of the company’s large tenement holding in Côte d’Ivoire.
• We are upgrading our recommendation on LGL from Hold to BUY and set a price target of $3.30/share.

View Full Report

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1. StoneBridge Snapshot – Silver Swan Group Limited
2. StoneBridge Research – Panoramic Resources Limited (PAN)
3. StoneBridge Research – OZ Minerals Limited
4. StoneBridge Snapshot – Forte Energy NL
5. StoneBridge Research – Panoramic Resources Limited (PAN $2.52)

KEY POINTS 

CPA operates under a simple trust structure with exposure to an Australian based portfolio of 27 prime grade office properties valued at approx. $3.6bn at 31 December 08.

100% of the groups operating earnings are derived by rent from the investment property portfolio. 60% of portfolio is leased to Govt/Blue Chip tenants of whom 50% have A grade or higher credit ratings. The portfolio WALE is 4.7yrs and occupancy at 31 March 09 was reported at 98.9% which slightly improved from 98.7% at December 08.

In Q309 CPA raised $205M at $0.80/unit via an insto placement and unit purchase plan. In addition, 13 assets were revalued which saw another $170M in property value written off and the portfolio avg. cap rate expand 30pts from 7.0% to 7.3%. CPA’s peak portfolio cap rate was 6.3% in Dec 07. NTA reduced from $1.41/unit to $1.24/unit.

Post raising and writedowns CPA’s covenant gearing (Total Liabilities/Total Assets) was 33% v 40% covenant limit which provides a buffer for a further 20% fall in values to breach assuming no income growth. To arrive at breach levels asset values would have to have fallen 35% from their peak which is at the more dramatic end of value declines in historical context.

Despite office fundamentals likely to be tested in the near term we are comfortable with CPA’s earnings position with only 13% of portfolio income up for renewal out until June 2011.

Valuation metrics are attractive with CPA trading at a 35% discount to the post raising NTA of $1.24/unit and on an implied cap rate of ~ 9.4% v 7.3% book.  If equity is valued based on a portfolio implied cap of 8.3%, a value of $0.91/unit is derived.

Management has guided toward a 4.2c DPU for the H209 and we estimate FY10 DPU 7.7c/unit or forward yield of 9.6%.

View Full Report

Related posts:

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2. Stonebridge Research: ING Office Fund (IOF)
3. Research ASX200: Dexus Property Group (DXS)
4. StoneBridge Research – OZ Minerals Limited
5. StoneBridge Research – Intrepid Mines Limited (IAU)

My first instinct to reply was to tell her that I never trade beyond my limits (mental or financial), but there is much more to it than that. For me, trading requires a sense of both calm and confidence that takes time and serious effort to acquire and maintain.

I discovered some time ago that one of the most simplest ways to remain calm and in control is to practice basic breathing exercises throughout the trading day. Years ago when I was back in law school and extremely stressed out over the final exams, a dear friend taught me several techniques that I still use every day. Others, like Dr. Weil, have said they’ve seen simple breathing exercises significantly improve people’s lives and I have seen the same for everyone I’ve recommended this to as well.

To help get you started, Dr. Weil has provided instructions on three breathing exercises that I highly recommend you try out for a period of time. In fact, at least three times every day I engage in the following exercise which Dr. Weil provides these instructions:

The 4-7-8 Exercise

This exercise is utterly simple, takes almost no time, requires no equipment and can be done anywhere. Although you can do the exercise in any position, sit with your back straight while learning the exercise. Place the tip of your tongue against the ridge of tissue just behind your upper front teeth, and keep it there through the entire exercise. You will be exhaling through your mouth around your tongue; try pursing your lips slightly if this seems awkward.

• Exhale completely through your mouth, making a whoosh sound.
• Close your mouth and inhale quietly through your nose to a mental count of four.
• Hold your breath for a count of seven.
• Exhale completely through your mouth, making a whoosh sound to a count of eight.
• This is one breath. Now inhale again and repeat the cycle three more times for a total of four breaths.

Note that you always inhale quietly through your nose and exhale audibly through your mouth. The tip of your tongue stays in position the whole time. Exhalation takes twice as long as inhalation. The absolute time you spend on each phase is not important; the ratio of 4:7:8 is important. If you have trouble holding your breath, speed the exercise up but keep to the ratio of 4:7:8 for the three phases. With practice you can slow it all down and get used to inhaling and exhaling more and more deeply.

This exercise is a natural tranquilizer for the nervous system. Unlike tranquilizing drugs, which are often effective when you first take them but then lose their power over time, this exercise is subtle when you first try it but gains in power with repetition and practice. Do it at least twice a day. You cannot do it too frequently. Do not do more than four breaths at one time for the first month of practice. Later, if you wish, you can extend it to eight breaths. If you feel a little lightheaded when you first breathe this way, do not be concerned; it will pass.

Once you develop this technique by practicing it every day, it will be a very useful tool that you will always have with you. Use it whenever anything upsetting happens – before you react. Use it whenever you are aware of internal tension. Use it to help you fall asleep. This exercise cannot be recommended too highly. Everyone can benefit from it. – Dr. Weil

Do yourself a favor and do this three times every day for the next three months. (I do it 5 minutes before the opening bell, again around lunchtime, and after the closing bell). To achieve the most benefit, it takes several months of practice and, if you do this, you’ll see big improvements in your overall levels of stress, your blood pressure will go down, and ultimately your trading and investing decisions will see significant improvement. In fact, this very well may be the most important piece of advice I share with you this year!

Remember, all things must be in harmony for you to achieve the level of success you desire. Taking care of your body is a component of this that few traders fully understand and appreciate and these simple breathing exercises will be of tremendous help.

Source: Kirk

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1. He bought his first share of stock at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same, small 3-bedroom house in midtown Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world’s largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO’s only two rules.
   Rule number 1: Do not lose any of your shareholder’s money.
   Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His pastime after he gets home is to make himself some popcorn and watch television.
8. Bill Gates, the world’s richest man, met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So, he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

Warren Buffett’s advice to young people

Stay away from credit cards and invest in yourself and remember:

1. Money doesn’t create man, but it is the man who created money.
2. Live your life as simple as you are.
3. Don’t do what others say. Just listen to them, but do what makes you feel good.
4. Don’t go on brand name. Wear those things in which you feel comfortable.
5. Don’t waste your money on unnecessary things. Spend on those who really are in need.
6. After all, it’s your life. Why give others the chance to rule your life?

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Can they make a killing?

The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead. The traders were selected in spring 2008, before the US credit crisis gathered pace. Among the traders are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper. As the novices learn the dark art of trading stocks and shares, the financial markets start to buckle.

Making money takes second place to basic survival as the brutal realities of global economics take their toll on the traders. How do they cope? Will they secure themselves a bonus, or walk away with nothing? This week, the eight novice city traders struggle to ride the storm as stock markets around the world go haywire. Some of them take big risks, and others lose their nerve in spectacular fashion.

To View part 1.

http://www.sbs.com.au/blogarticle/109701/Million-Dollar-Traders-3-part-series/blog/Documentaries-SBS

Reality/Real-Life/Fly-on-the-Wall

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• June update video including the launch of WebTrader & MobileTrader, new functions on the platform, current market updates and more.
• WebTrader & MobileTrader Launch
• New Features
• Follow Total Trader on Twitter
• Suggestions & Feedback

June Update Video

WebTrader & MobileTrader Launch

We have now released WebTrader and MobileTrader.

Existing clients can log in WebTrader and MobileTrader using the log in details you use to log in into the platform. Please find the web addresses below:

WebTrader – web.totaltrader.com.au
MobileTrader – mobile.totaltrader.com.au

Click here for a free 30 day trial of WebTrader or MobileTrader

New Features

We have expanded the range of exchanges we cover to now include Hong Kong Futures (Hang Seng Index, Mini Hang Seng Index, Hang Seng China Enterprise Index), Canadian Stocks and Canadian CFDs.

Additionally we now offer related orders (If Done & OCO) for DMA CFDs, Stocks and Futures. Previously these orders types were only available for Non-DMA CFDs and Forex.

Follow Total Trader on Twitter

Total Trader is now on Twitter – http://twitter.com/TotalTrader. We post up to the minute news, information and tips.

Suggestions & Feedback

We welcome client feedback to improve our services. If you have any suggestions of how we can improve or comments about what you like about our service, we would like to here from you. Please email info@totaltrader.com.au

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KEY POINTS:

IOF operates under a simple trust structure collecting income from blue chip office properties spread across Australia (55%), Europe (20%) and the US (25%). At 31 December 08 IOF’s property interests were valued at approx. $3.5bn with Aus Govt & blue chip tenants accounting for 64% of income. Occupancy sat at 96% and the WALE 4.9yrs.

The average portfolio cap rate was 6.8% at 31 December 08, falling from 6.3% at 30 June 08 (7% asset value decline in total) and 5.8% at the peak in December 07.

IOF raised $414M @ $0.80/unit in Dec 08 to reduce its gearing levels however has not traded above this price since over concerns that the groups proximity to debt covenant limits and downward pressure on valuations would lead to a covenant breach and further equity raising.

In response to this issue, management has stated it would pursue an asset sale rather than equity raising strategy with progress made today on announcement of the sale of 412 St Kilda Rd, Melbourne for $42M (6.7% discount to 31 Dec 08 book) and that terms had also been agreed for the disposal of a further assts to the value of $115m.

Whilst an asset sale strategy is a more appealing course of action in terms of dilution to address the covenant issue, this may be a drawn out process with transactions still scarce. As such the recent improvement in the unit price (from $0.36/unit to $0.62/unit in the last month) may make an equity raising more palatable than before to put the covenant issue to rest.

Valuation metrics around IOF remain attractive despite the recent share price strength and at $0.62/unit trades on an implied cap of 10.5% v 6.8% book and 50% discount to our estimate of the December 08 adjusted NTA of 1.23/unit (post $42M asset disposal).

Whilst we believe asset values have further to correct, even if cap rates are assumed to expand to 8.05%, our revised NTA estimate is still $0.94/unit (33% discount at current pricing). Furthermore if we incorporate an equity raise of $400M @ $0.50/unit on top of this asset value decline our NTA estimate falls to $0.83/unit (25% discount) implying that significant dilution has already been incorporated into the unit price.

We estimate FY10 EPS of 7.5c/unit (P/E 8.2x), incorporating a reduction in occupancy to 94% and DPU of 5.9c/unit (9.5% yield) assuming maintenance capex is funded moving forward from operating cashflow and no further equity raised.

IOF’s FY10 ICR is estimated to be ~3.2x v 2.0x covenant limit.

View Full Report

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5. StoneBridge Research – Panoramic Resources Limited (PAN)

• OZL hosted a site visit to its Prominent Hill mine in South Australia on 3 June 2009.
• The site visit confirmed our view that Prominent Hill is a world class asset with excellent near mine and regional exploration upside.
• OZL has successfully commissioned the asset and aside from some stability issues in the upper parts of the pit wall the ramp up to full production has been completed without any major issues.
• There is still some uncertainty as to the outcome of the Minmetals transaction ahead of the shareholder vote on the 11 June 2009.
• We expect that the Minmetals transaction will be approved, although there has been some media speculation of an alternative proposal which would see the current OZL structure remain intact.
• Our $0.85/share valuation for OZL is assumes the Minmetals transaction is approved by shareholders, hence includes only Prominent Hill, OZL’s listed investments and around $500-600M in cash that the company should hold post the Minmetals transaction and the sale of the Martabe Gold project.
• The stock is trading in line with our valuation and given the level of uncertainty that remains ahead of the shareholder vote on 11 June 2009 we have downgraded our recommendation from Buy to HOLD.

View Full Report

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However, market analysts warn that a market correction of up to 10 per cent could be prompted by weaker corporate earnings and poor offshore economic data.

The S&P/ASX200 has risen 7.9 per cent since January 1, and Wednesday’s close at 4017.2  was its strongest finish since November 10, 2008.

The benchmark index retreated 1.7 per cent this morning to around 3950 points, following a weak lead from Wall Street.

Bell Potter Securities senior client adviser Stuart Smith said the market had “most definitely” bottomed on March 6 when the S&P/ASX 200 hit 3145 points.

The S&P/ASX 200 is now up more than 25 per cent from its March low.

Zurich Australia’s director of investments Matthew Drennan forecast the  benchmark index will rise to between 4100 and 4200 points by December 31, while Platypus expects it to reach 4500 points by the end of the year.

Mr Smith says a 4170 point finish to the month of June is on the cards if bullish sentiment surrounding resources stocks translates into earnings upgrades by analysts.

Mr Drennan said negative economic news from the US, higher domestic unemployment and a fall-back in consumption spending could buffet the market over the next six months and prompt a correction.

“It (the downwards correction) may even be up to 10 per cent over the next three to six months on a trend of a few bad economic numbers in a row.”

Corporate earnings results due in the September quarter may pull another dark cloud over the market and as outlook comments were analysed, Platypus Asset Management chief investment officer Donald Williams said.

“If they come out and say things are still weak and it’s too hard to call how things will play out in the next six to 12 months, then maybe that will be the trigger for a correction.”

Source: http://business.smh.com.au/business/market-tipped-to-hit-4500-by-year-end-20090604-bw9z.html

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Trends were very mixed across sectors of the economy. On the expenditure side, business investment, dwelling investment and government investment were all down sharply. So while household spending rose solidly (0.6%) and is clearly responding to policy stimulus, with was not enough to keep domestic demand positive in Q1. The domestic economy contracted by 1.0% after being unchanged in Q4.

Instead, a very large contribution from net exports (2.2ppt) helped to keep growth on the positive side of the ledger. This in itself is not particularly encouraging as it was mostly driven by a collapse in imports (-7%), with consumption, capital and intermediate imports all down sharply, suggesting that firms were concerned about the economic outlook and unwilling to purchase capital equipment or replenish stock levels. A large cyclical bounce in rural export volumes also helped.

Production in the economy also experienced a large drop, with the production measure of GDP down -0.9%. This was the second negative quarter for production following a 0.6% contraction in Q4, highlighting the continuing fragility of the economy. Manufacturing output continued to bear the brunt of the downturn, falling another 3.3% this quarter (now down 9% from a year ago). This was spread across a range of manufacturing segments. Our other major exporters, agriculture and mining also saw their real output shrink in the quarter and property and business services and wholesale trade and transport also contracted. Stronger household spending managed to keep retail trade positive, but activity in hospitality and recreational services both fell in quarterly and annual terms.

State final demand fell in all states except SA in Q1 2009, but most managed to remain positive in annual growth terms. This was due in part to household final consumption expenditure, which was a strong 1.5% QoQ in SA, but ranged down to -0.2% QoQ in Qld (trend). Private fixed capital formation was negative in all states. Only Qld and ACT showed negative annual growth. The biggest states, NSW and Vic were flat or close to it in annual growth terms.

Comment

Today’s solid result suggests that fiscal and monetary policy stimulus has overall been effective in softening the Australian economic downturn. Unfortunately however, the composition of growth is not as reassuring. In particular, the fall in domestic demand highlights the fragility of the domestic economy. While the household sector is receiving support from policy measures, the business sector is showing all the hallmarks of contraction, with investment, production and inventories all falling.

We remain concerned that factors propping up growth this quarter cannot be sustained. There remain significant risks to household expenditure later in the year as unemployment rises and as stimulus from cash handouts and lower interest rates wears off.  Moreover, part of the acceleration in household consumption was driven by a fairly sharp fall in the household savings ratio.  This is of concern for household finances and consumer spending should unemployment continue to rise from here. Furthermore, national income will receive a large hit in Q2 from lower bulk commodity prices and the massive contribution from net export volumes will not be continued; another sharp fall in imports is unlikely, rural exports cannot continue to rebound at the same rapid pace, and there are significant downside risks to hard commodity exports, particularly if China ceases stockpiling bulk commodities. The recent appreciation in the Aussie dollar and higher term interest rates also present significant risks to the economic outlook. On the positive side, ambitious infrastructure plans should see government investment add to growth going forward, although this will not be enough to offset sharply lower business investment.

Today’s figures are stronger than policy makers had been expecting, and support the view that the RBA will be on hold in coming months. Focus will now shift towards more timely economic indicators and evidence that this rebound can be sustained. There remain substantial challenges ahead for the domestic economy, and the RBA has clearly signalled that it is poised to cut rates further if necessary. As such, we believe that the risks to policy rates later in the year remain to the downside.

Related posts:

1. Reserve Bank of Australia Statement on Monetary Policy (May 2009) – RBA’s revised forecasts make a strong case for rate cuts, but not yet
2. Australia: No Recovery On The Horizon
3. Are There Bright Spots Amid the Global Recession? – Nouriel Roubini
4. Six Signs The Recession Is Ending
5. When Will the Recession End?

Here are some valuable nuggets I have gleaned from the book, “How to Trade Stocks,” by Jesse Livermore, with added material from Richard Smitten. It’s published by Traders Press and is available at Amazon.com. Most of the nuggets below are direct quotes from Livermore, himself.

 
“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”

 
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

 
” Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.”

 
“Livermore’s money made in speculation came from “commitments in a stock or commodity showing a profit right from the start.” Don’t hang on to a losing position for very long.”It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

 
“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

 
“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”

 
“Livermore coined what he called “Pivotal Points” in a market or a stock. Basically, they were: (1) Price levels at which the stock or market reversed course previously–in other words, previous major tops or bottoms; and (2) psychological price levels such as 50 or 100, 200, etc. He would buy a stock or commodity that saw a price breakout above the Pivotal Point, and sell a stock or commodity that saw a price breakout below a Pivotal Point.”

 
“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.”

 
“A prudent speculator never argues with the tape. Markets are never wrong– opinions often are.”

 
“Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.”

 
“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.”

 
” When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”

 
“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job — perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”

 
“The big money is made by the sittin’ and the waitin’ — not the thinking. Wait until all the factors are in your favor before making the trade.”

An important point I want to make is that Jesse Livermore’s trading success came not because of any “inside” information or some huge store of knowledge he had about each and every stock or commodities market he traded. Livermore’s trading success was derived from his understanding of human behavior. He realized early on that markets and stocks can and do change — but people and their behaviors do not. Therein lay his formula for trading success. That formula for trading success has not changed since Livermore’s hey day in the stock and commodities markets almost a century ago. 

A final note: Jesse Livermore may have been called the greatest stock market trader of the 20th century, but his life was not in balance. He was a “workaholic” who paid too little attention to his family. Livermore put a gun to his head and pulled the trigger in 1940. You must have balance in your life to achieve lasting success at any endeavor. Trading markets is no exception.

Source: forexinterva

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The inverted hammer, long white candlestick and marubozu show increased buying pressure rather than an actual price reversal. With its long upper shadow, an inverted hammer signifies intra-session buying interest that faded by the finish. Even though the security finished well below its high, the ability of buyers to push prices higher during the session is bullish. The long white candlestick and white marubozu signify sustained buying pressure in which prices advanced sharply from open to close. Signs of increased buying pressure bode well for support.

The doji and spinning top denote indecision and are generally considered neutral. These non-reversal patterns indicate a decrease in selling pressure, but not necessarily a revival of buying pressure. After a decline, the appearance of a doji or spinning top denotes a sudden letup in selling pressure. A stand-off has developed between buyers and sellers, and a support level may form.

Note: All of the patterns above will be covered in this candlestick series in the next few weeks.

Electronic Data Systems (EDS) traded in a range bound by 58 and 75 for about 4 months at the beginning of 2000. Support at 58 was first established in early January and resistance at 75 in late January. The stock declined to its previous support level in early March, formed a long legged doji and later a spinning top (red circle). Notice that the doji formed immediately after a long black Marubozu (long black candlestick without upper or lower shadows). This doji marked a sudden decrease in relative selling pressure and support held. Support was tested again in April and this test was also marked by a long legged doji (blue arrow).

Broadcom (BRCM) formed a bullish engulfing pattern to mark a new support level just below 210 (green oval) in late July 2000. A few days later a long white candlestick formed and engulfed the previous 4 candlesticks. The combination of the bullish engulfing and long white candlestick served to reinforce the validity of support around 208. The stock has since tested support around 208 once in early September and twice in October. A piercing pattern (red arrow) formed in early October and a large hammer in late October.

Medtronic (MD established support around 46 in late February with a spinning top (red arrow) and early March with a harami. The stock declined sharply in April and formed a hammer to confirm support at 46 (green arrow). After a reaction rally to resistance around 57, the stock again declined sharply and again found support around 46 (blue arrow). The black candlestick with the long lower shadow marked support, but the body was too big to qualify as a hammer.

Source: Stock Charts

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The opinions of Jeremy Grantham, veteran investor and founder of Boston-based money-management firm GMO, have been featured regularly in posts on the Investment Postcards blog. Against the background of his general disregard for  conventional wisdom, his turnaround in early March from a perma-bearish stance to a more bullish demeanour was particularly closely followed.

“… be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle less black than the day before,” he said in March in a newsletter entitled “Reinvesting when terrified”. He also cautioned investors not to fall prey to “terminal paralysis” that often sets in after a financial crisis.

A recent interview by SmartMoney with Grantham provides insight on why he has changed his mind and his prognosis for the future. A few excerpts from the interview are shared below.

SmartMoney: In 2007 you were worried the global financial market could fall apart, and you said a market downturn was probably coming. Okay, say it: “I told you so.”

Jeremy Grantham: That seems so long ago. I felt like saying that a few months ago, but now onward and upward, and wait for the next unexpected twist.

SM: Why were you so certain things were going to get so ugly?

G: There wasn’t a whole lot of doubt where I was coming from. I thought the fair value of the S&P was 925; the S&P went to 1500. And by 2006 the housing bubble was at a 100-year peak. This was the 32nd asset bubble that we’ve tracked, and all but the U.K. housing bubble have popped.

SM: … for the first time in years, you like US stocks.

JG: We think a fair price for the S&P 500 index is 900. By sheer divine intervention we bought into the market on Mar. 6, the day it hit the recent low of 666. It’s likely, but far from certain, that we’ll go back and make a new low. You aren’t going to get to buy at the absolute low unless you have a time machine.

SM: Anything else besides US stocks?

JG: US stocks were nicely cheap, and frankly, the rest of the world was even cheaper. In early March, when we bought, we invested only in stocks we thought would have a 10 to 14 percent average annual return after inflation. That’s magnificent. We haven’t seen anything like that in 20 years. It was somewhat disappointing that prices moved up so fast in just a couple of weeks. The odds are a bit more than 50-50 that we will go back and test that low.

SM: So you’ve made a quick buck. Now what?

JG: You have a set of possibilities. First, if the market nosedives, it’s easy: You buy. The second is confusing, when the market just goes sideways, between 700 and 800. The market is irritatingly cheap then, but not super cheap. The longer that goes on, the less probability we will set a new low, so we’ll ultimately put money each month into the market.

SM: What if stocks keep rallying?

JG: If the market goes higher, above 950, and then starts moving sideways, between 950 and 1050, we probably do very little. Then the market is moderately overpriced.

SM: Over the long haul, is there any particular industry or sector you like?

JG: The people who move quickly in this market can make money. The people who invest in energy alternatives will make more. Alternative energies and combating climate change are the single most important economic initiatives over the next 10 years-really over the next 50 years. It will be a very exciting next 50 years.

SM: Will we get out of this mess?

JG: The stimulus is so great in the United States, China and the United Kingdom, it will kick the economy up. GDP will go back positive for two to three quarters. They’ll assume everything is settled, that throwing money at it has worked. But the long-term imbalance between overproducers [like China] and overspenders [like the US] will continue. It’ll be a multiyear drag on growth.

SM: We’re just throwing money at the problems?

JG: If the problem is that we consume too much and borrow too much, does it make sense to borrow more and spend more? It doesn’t make sense to solve alcoholism by giving an alcoholic a quart of whiskey, but everyone believes that we must stimulate. So that’s why we feel this is a temporary cure. This is like when you revive the drunk, he staggers down a few blocks, then falls down again.

SM: That does not sound promising.

JG: We’re not rich, and we’re undersaved and underpensioned. Those will be a real brake on economic growth. This will be a pretty long recovery period, longer than we’re used to, but hopefully not as long as Japan took. It will not be as long as the Depression, but it will be several years, and not just two. Lord knows we have had several fat years.

Source: Russell Pearlman and Jonathan Dahl,

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Mood swings when trades go bad are not inevitable. The professional trader plans to be wrong and manages positions accordingly. That trader knows that you can trade well and still have a couple of trades go bad. Embracing risk and uncertainty, the successful trader limits losses by controlling position sizes and establishing loss limits (per trade, per day).

The good trade gone bad often provides a trader with valuable information–if the trader is open to the message. Today I worked with a trader who tried to buy the market in the afternoon, only to get stopped out. Shortly after, he noticed weakness in the 10-year Treasury notes and reversed his position. By day’s end, he was profitable by a healthy six figure sum. The “bad trade” offered opportunity, not threat.

If you do experience mood swings around losing trades, it’s probably because you are evaluating yourself by the criterion of being right–not by the criterion of trading well. It isn’t the losing trade making you feel bad; it’s the perfectionistic expectation that you should always be right. By embracing uncertainty and staying open to learning from it, the threat of losing can turn into the opportunity of rethinking market assumptions.

Source: TraderFeed

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An interesting analysis by the Goldman Sachs Global Economics team suggests that every major economy has possibly already seen its worst rate of GDP decline, either in Q4 of last year or Q1 of this year (see graphs below). “Emerging markets are likely to see a return to trend growth about six months, on average, before advanced economies. Similarly, emerging markets on average will close their output gaps – the difference between actual growth and trend growth – about two years before advanced economies,” said the economists.

Although the Goldman team are not under the elusion that they will be entirely correct on the timing of these events, they do feel more confident about the relative order in which countries/regions will reach the above milestones. The analysis leads them to the following market implications as summarized in the report:

• Equity markets have most likely bottomed and volatility should start diminishing.
• Countries that get back to trend growth sooner will tighten monetary policy sooner.
• Countries that get back to trend growth sooner should see their currencies strengthen.
• As the output gap will take many years to close, there should be limited pressure on prices and wages. Deflation will still be a greater concern in the short term than inflation.

• Emerging markets, particularly Asia, should offer more opportunities for outperformance for equities and forex, and could support commodity prices, especially industrial metals.

Source: Peter Berezin and Alex Kelston, Goldman Sachs – Global Economics

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Of course, these are the same folks who said there would not be a recession. Given their track record and ill informed opinions, we can safely ignore the noise that passes for their analysis. In its place, lets use a variety of readily available metrics that will provide a more objective measure.

Let’s look at the Conference Board’s Leading Economic Indicators, the ECRI LEIs, and the Ratio of Coincident to Lagging Indicators. They imply sometime in the first half of 2010.

1) Conference Board’s Leading Economic Indicators: Historically, when we see the LEIs jump a full point (to 99 in April), that is a positive sign for the end of a recession. David Rosenberg, now Chief Economist & Strategist at Glusking Sheff, notes that going back to 1960, “the only times we have seen increases of this magnitude in recessions were at the very tail end of the downturns.” However, he warns that “even if the LEI has bottomed, it typically takes another six months for the recession to come to an end and that lag time has been known to be as long as 10 months.” Given the severity of this downturn relative to prior recessions, we are likely to be on the longer end of the range.

2) ECRI LEIs:  The Economic Cycle Research Institute (ECRI) leading index has risen to -11.5% – that has been a significant point in past recessions. On average, it takes five months from the time this index hit -11.5% til we reach the end point of a recession. Again, the average can be misleading, and the range is what matters. In the past, the minimum was one month and the maximum was 12 months. Again, givent he depth of this recession, and then credit destruction it has had, expect the longer end of the range.

3) Ratio of Coincident to Lagging Indicators:  The coincident-to-lagging ratio almost always bottoms at the lows in the S&P 500, usually within a 2 month range. Look at levels around 93 (range of 90.9 to 94.2).

The chart below is from Summer 2008;  I will update it later today . . .
>

Coincident-to-lagging indicator in recession terrain

 Source: Barry Ritholtz

Related posts:

1. Six Signs The Recession Is Ending
2. G20 declares war on global recession
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4. Are There Bright Spots Amid the Global Recession? – Nouriel Roubini
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Anyone that has ever been to Las Vegas can see the money that the casinos spend to lure the gambler into their casino. The casinos make their money, an enormous amount of money, by maintaining their edge. In the collection of all games that a casino runs, they still maintain around 4.5% edge. That means that out of every dollar that is brought in to the casino, 4.5 cents stay there. Some people hit the jack pots, some people lose everything they have, but the casino, on average, makes 4.5%. For the casinos, it is not gambling, it is a game of odds, probabilities and they know their edge. The more gamblers come in, the more money they bring with them, the more the casino makes, as long as they maintain their edge.

In trading, the trader runs their own casino. If a trader wins 80% of the time, makes $200.00 every time he wins and loses $100.00 every time he loses, on average the trader makes $140.00 per trade. As long as the trader maintains his ratios, his edge, he will make, on average, $140.00 every time he executes a trade.

This is a very important statistic for a trader. Being aware of these numbers allows traders to weather draw downs, stick to their system, eliminating hesitation and managing their trading correctly.

Odds and Your System

Every trader wants to make money. Even the best analysis, best system in the world will have losing trades, it is just part of the business, there is no 100% success. After a long testing period, every trader should evaluate their statistics to find their edge. What percentage of trades are profitable? What is the average winning trade? What is the average losing trade? What is the average profit per day?

Testing a trading system is a gradual process, as many factors can affect results. By paper trading for a long period of time, a beginner trader can evaluate their trading system. The next step is trading minimum size positions and testing system results again. Keeping a trading diary and tracking performance as the system develops can establish the system’s edge and odds of success. These numbers will help the trader become a business and not a gambler.

Odds and Your Individual Trades

Every trading system has certain conditions or parameters that are required before a trade is executed. Depending on the structure of the trading system, there can be more parameters or less parameters. The more conditions are true, the higher the odds of a successful trade. It is almost impossible to find a trade that has all conditions aligned, almost all trades are less than perfect.

Knowing the trade’s odds can help a trader evaluate risk and adjust position accordingly. If only 80% of conditions in the trading system exist, the trade has less odds of success than a trade that has 100% of conditions and should be traded differently.

If all trading conditions exist, if all indicators are lined up, the trade has certain odds of success. If not all indicators are lined up correctly, the trade has lower odds of success. Below a certain level of odds, the trade should not be taken.

Thinking in Odds

Most traders have serious problems thinking in odds because it is against our nature to take on a position without being 100% sure that it will be a success. Losing hurts, it is painful, taking a position knowing that there is a chance of loss is usually avoided. Traders want to “know” what is going to happen and therefore look for the black and white in trading. Black and white do not exist in trading.

A trade can be right and still lose. All indicators can be aligned and the trade can still lose. Even if the system is 99% accurate, there is still a chance that the trade will be a loss. Most traders are unable to accept this and it causes frustration. By learning to think in odds, a trader can both vary their trading according to odds of success and accept losing trades a lot easier.

Source: Forex Interval

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Most brokers and brokerage houses now offer online trading to their clients. Another great thing about trading online is that fees and commissions are often lower. While online trading is great, there are some drawbacks.

If you are new to investing, having the ability to actually speak with a broker can be quite beneficial. If you aren’t stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you learn as much as you can about trading stocks before you start trading online.

You should also be aware that you don’t have a computer with Internet access attached to you. You won’t always have the ability to get online to make a trade. You need to be sure that you can call and speak with a broker if this is the case, using the online broker. This is true whether you are an advanced trader or a beginner.

It is also a good idea to go with an online brokerage company that has been around for a while. You won’t find one that has been in business for fifty years of course, but you can find a company that has been in business that long and now offers online trading.

Again, online trading is a beautiful thing – but it isn’t for everyone. Think carefully before you decide to do your trading online, and make sure that you really know what you are doing!

 Source: medusawrite

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Either way, isn’t there something inherently greedy about the whole idea of deficit spending? Households, businesses, the government…all of them take excessive risks in the boom phase of the credit expansion. Then, rather than reckoning up the investments, taking the losses, and moving on to the next cycle of economic growth, they try to have all gain and no pain.

They do this by borrowing a little. Then a little more. Then a lot. It all sounds very textbook and officially appropriate. But all of it is to “fight” the very recession that is a natural part of the business cycle anyway. When you get right down to it, there is something tawdry and small spirited about it. Think that your avoidance of consequences allows to put future generations in debt is also just plain vulgar, materialistic, selfish, and not honourable.

And let’s not forget deceptive! Here we’re talking about the first home buyer’s grant again.

“The average loan size for first-home buyers has risen by $52,000 – or 23 per cent – in the past two years, raising fears that the much-publicised government incentives for young buyers are artificially inflating the market,” report Nick Tabakoff and Joe Kelly in yesterday’s Australian.

Prices at the bottom end of town are moving up because of the grant. This is forcing those new buyers to take out even larger loans. We can see how this is good for real estate agents, lenders, stamp duty collectors, and mortgage insurers. We can’t see how it’s good for first home buyers to see the entire value of the grant tacked on to the price.

And while we’re at it, it’s hard to see how getting into the housing market at the bottom of the rate cycle with huge question marks in the economy about employment, is, you know, a smart, safe, financially prudent thing to do. But if the government says it’s a good idea, it must be true.

And of course, we’re certain the banks have been prudent in keeping the strictest lending standards. They would never, ever make a loan to someone who might have trouble servicing the debt. That just wouldn’t happen in Australia. Impossible.

Of course you could make the argument that keeping house prices inflated by whatever means necessary is a policy goal in Australia, just as it was a policy goal in America. With the stock market in a secular bear phase, the idea of financial and personal security from ownership is one of the most powerful remaining myths in public life (the idea of retirement is already under attack, once you do the demographic math.)

So it IS possible the government will do even more to support house prices. But it is also possible there is nothing the government can ultimately do to support house prices if they really are seriously unaffordable, as we believe they are. You can keep interest rates low, make grants, guarantee loans, or even buy securitised mortgages. But you can’t make prices affordable by throwing more money at them.

Yet throwing more money at the economy through quantitative easing is just what the U.S. and the U.K. are doing. It is a back-door devaluation of the currency which is directly reflected in the recent performance of both the pound sterling and the greenback.

What you need to know as an investor is that governments will ALWAYS choose the path of radical devaluation and inflation over accepting recession or deflationary depression. That is why gold and other forms of tangible wealth are the best ways to prepare for the coming re-devaluations. They are on their way.

by Dan Denning for The Daily Reckoning Australia

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The agreement is as follows:

Iron ore fines – US¢97/dmtu down 33% from US¢145/dmtu

Iron ore lump  US¢112/dmtu down 44% from US¢202/dmtu

(dmtu – dry metric tonne unit)

We had assumed price reductions of 35% for fines and 40% for lump, hence the contract prices are roughly in line with what we had expected. We believe the result is ahead of consensus expectations which ranged from 30-50% reductions for both fines and lump. The removal of the contract pricing uncertainty should also be a positive for most of the iron ore companies.

The biggest leverage to the news (aside from BHP and RIO) is FMG and MGX, the largest of the independent iron ore producers. AGO and MMX should also benefit from the removal of the uncertainty surrounding prices. Our preferred pick is FMG.

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