PLOPINO

MARKET MANIPULATION

2011-10-20T12:59:00.001-04:00

BULL OR BEAR THOUGHTS

2011-10-14T06:58:00.001-04:00

Question: hotto, are you still in the bear market camp and thus possibly at the top end of the range or in a holiday rally mode to year end? ty

Hotto:
The questions of IT Rally // or end of Bear market -- I don't "know" as yet. We do have this new period of some "safety" - from sudden downside crash -- due to the 10/3 10/4 "Extreme Negative" Low - which was a complete Retest of the 8/9 Low. That test was not completely successful - but good enough for this "safe" period - where stocks can go back to the high of the Range -- and we can hold stocks longer than a few hours. Tradeable Rally - the old term for this period. The price action since 10/4 has been impressive - but has not had strong Volume to show Urgency of buying. It looks like another Trader move -- across the Trading Range once more -- Air Pocket stuff. I noted last night - Wednesday's move was a full test of the 9/1 SH. Plus Wednesday - peeked Over the top of the Down-Channel. Then closed back under. Volume has not been very strong during the Rallies of the last two years. It's been a time of Short-Covering and ST trading - mainly driving the moves. But - that did not stop the market from a 25% + rally from summer, 2010 to April, 2011. Price matters most. The DJIA is now just under the 9/1 high -- and just below the UBB -- and just below the top of the Down-Channel. If it breaks above that level -- say close Over the UBB - over 11,700 -- then we have some more Upside room. The Top of the Bull market was on May 1 - then PB to June low - then Retest of Highs during July Q2 Earnings Season. 11862 - 11900 was the bottom of the June Lows area - between the double top. I had thought the late August rally would get up there - to test that Resistance. Instead the 9/1 high fell short -- 11717 was the SH. So - that 11900 area is still to be tested for a first time. Just above that -- is sma150 / sma200 -- at 11960 -- and flat to falling a bit. The SP-500 had SH of 1231 on 8/31. And the June low was 1258 - 1268. If the Averages can close Over the 8/31 and 9/1 SHs -- Would be a BTBO -- and give us a new IT Rally leg - still without an "Impulse Rally". The Volume since the 10/4 SL has not been strong enough to declare an "Impulse Rally". . For comparison - look at the text-book IT Rally – of March, 2003. Then - 8 days of "driving" buying. It stands out from the prior days. Note what happened next -3 weeks of forming a Pennant - just under sma200 -- before real BO in April/May of 2003. The "Impulse Rally" at that time - did not mean Instant reward of more Rally. The big buyers took a step back - weeks -- before the actual IT Rally resumed. That was a brief review - for comparison. There are many more words on the website. Back then - the Economy was still growing broadly. A new Rally stimulated a response of "Don't leave without me!" Now - Growth is uncertain. The feeling continues that we can wait a bit - and catch the next train. So - we need Severe Selling - with those Horrible "Extreme Negatives" - to produce "safe" bottoms -- for several weeks. I'm hoping to live long enough to see it change again. Maybe the Election next year will give us at least a good long Leg up - with some "believers" again. After that - we'll see. My thought is more down - after that "new President" rally. I'll be happy to be wrong about that one. For now -- we are just 8 days into the new Rally period - born of the "Extreme Negative" low of 10/3 10/4. And - now in the Q3 Earnings Season -- goes on another few weeks. AA earnings were weak - but we've come to expect that. GOOG gave another super report. Internet use continues to grow - worldwide. That means many tech stocks will participate in this Rally period. Just after Earnings Season -- we will go back to the Fights in Washington . The Super-Committee sits like a sword above all. Europe - we are in a kind of "safe" period - till end of October -- That's when we were told there would be a "plan".
---
So - for now - we watch the Trading Range - and signs of actual BTBO. H/L on NYSE was 31/20 today - per Yahoo finance. That's not exciting - but at least Positive again.
NUAN - an old fav -- touched a nATH today. That's something
SAVE - a recent IPO - surged to ATH
GOOG earnings tonight - will ignite many techs on Friday morning -- likely thru next Tuesday --when AAPL reports. So - the whole market may not BTBO -- or it may. But it's a good time for individual Stocks - or some ETFs.
SOXX SMH - the Semis - SOXL is the *3 of SOXX
XLK is Technology ETF
TYH is 3* Tech ETF

BUY SIGNAL

2011-10-13T08:05:00.000-04:00

ZBT - Zweig Breadth Thrust Indicator. Compute as 10 day Exp Average of (Advances / ( Advances + Decliners ) ). Marty Zweig developed that long ago. His research said we get a Momentum Buy signal when... Within a 10 day period.. the Indicator moves from below 40 to above 61.5. It gave 14 signals from 1945 to 1984. The average gain after a ZBT signal was 24.6%.. within average 11 months.. AFTER the signal was given.

T2103 rose to 61.2 today -- and Intraday was at least 61.8 ---now close to another ZBT Buy signal. Remember - according to Zweig's research -- After a ZBT buy signal - the stock market is likely to rise an average of approximately 25% within the next 11 months - on avg. Some took a bit longer. Some of the advances were as little as about 15% -- From the point where the ZBT was signaled. Some were as big as 30%+. Sometimes - (in the Zweig study) the market fell back Before the larger advance began. We had that in August - September. Now waiting for the move - approximately 25% above the late August highs -- by approximately July of 2012. The ZBT buy signal has never failed -- so far. That makes me uneasy. :)

---

2008 Again???

2011-10-07T09:30:00.002-04:00

projections

2011-03-08T05:16:00.002-05:00

Question: Sir Hotto any ideas on an int correction beginning now or soon
Hotto: - same old story -- Need to Break the last SL - with conviction. :) Else - keep Trading at the Bumpers :) Stock Mkt Bumper Pool : ) One school of thought now -- is Ben and his helpers -- are using their "good hands" to keep stocks working higher. Or it's just the huge pool of Money out there. When QE2 ends in June - there will be a lessening of the "good hands" effect. And Traders will likely also flip over. I've thought the Traders may Anticipate by a month or so. That would be in early May -- just after the Q1 Earnings Season.
Comment: sell in may and walk away that works
Hotto: And - just After the Tax day 4/15 -- and end of month.
-----------------------------12013 is LBB-- that's below 3/2 SL
*12019
So – the LBB is almost exactly at 3/2 SL.
on DJIA - this is developing into a scary pattern -- over last 2 weeks.
"possibly develop into a crash" -- could be "flash crash" -- or maybe Prechter's dream :)
I saw that Prechter changed his Downside target-- from "below 1,000" to 6,000. That would be better - for some peeps : ) Say "whew!" I was really Worried about 1,000. But 6,000 is ok :) At 1,000 -- it's "pass the ammo please". At 6,000 -- it's Get me some New representatives :)
Comment: and you get immediately tossed off the train by being shot, no?
Hotto: It's a new world -- gonna be lots of peeps thrown off the train. Sorry. We fell to 6K -- with Ben ready to jump into the phone booth. Next time - not so much. Hopefully, we get a Correction. Then "self-sustaining" expansion. There's lots of Money out there -- hopefully will come in - and boost the Economy. First chance - I think - is in May/June -- for big drop. Hopefully not until late 2012 or 2013. I discussed that in lots of words a couple weeks ago. I have some nuances - but alas - Moderated is broken.
-----------------i
if this Bear flag formation plays out -- it suggests about 500 - 600 points more down - below the 3/2 SL. That would be about 11500 or lower.
11650 is approximately sma90
11574 is the 1/10 SL - approximately where the flat of late December.
10984 is sma200 -- DJIA has not been down for a visit since September, 2010.
Ok - but – the DJIA is still Above the LBB -- and above 3/2 SL -- and 2/24 SL - and Over sma50. Lots of "obstacles in the way". I won't break out in song : ) But "I can see clearly now" :)

THE BOUNCE

2011-02-24T09:17:00.001-05:00

TODAY, Thursday 24th February 2011
We continue to see oil climb and the markets react to the down side.
I am looking for a bounce today or tomorrow.
However, the bounce should fade and retest the lows again.
QQQQ has hit it's daily 50 SMA.

The typical correction of a weekly bear engulfing price, ( during this QEII rally) continues to move down for 2-3 weeks minimum.
Should things get nasty we could see a multiple month sell-off.
We broke our "watch" numbers yesterday.
"Watch for any break below these numbers.
Dj-30 12,156
SP-500 1311.74
QQQQ it is 57.49"

Bounce targets for the
DJ-30 = 12,196
SP-500 = 1311.32
QQQQ = 57.55

BRADLEY MODEL

2011-01-29T04:55:00.000-05:00

http://www.marketmulticycles.com/marketmulticycles9.htm

MARKET NEVER GOING DOWN

2010-04-16T04:56:00.000-04:00

The conditions for Correction are in place. Low Put/Call ratios - Lowest Ever
Now - need a trigger - to break the fever. Either - Gap up and Reverse Down -- or something to allow falling thru Uptrendlines. Bad news -- or Lack of Buyers. That piddling little Initial Claims this morning - did not impress the markets. AT the bottom line - markets Love Unemployment. Even the miss on Industrial Production did not impress anybody. Underutilized capacity - means Low Inflation. The Asian workers will do the work - and our 85-90% employed will buy stuff -- assisted by he huge China middle class. So - what can turn it down ? aside from a big surge and Neg Reversal ? Good Question. Pisani now yaps about a "wall of Money" flowing into stocks -- on any dip. That fits in the idea of Short-covering low volume move -- to 2012-13. But -- usually - when there is a major Shift in thinking -- it takes a Correction - to get rid of the Old ideas. I'm willing to learn new tricks. The last two years have shown me some. Keep in mind - stocks looked kinda tired - until INTC charged em up again. There are a few hundred more big companies to report the next two weeks. I talked about 2004 pattern - with a peak in early April - then PB -but mostly flat til end of April -- then Down in May. The Big difference between 2004 and 2009 showed up early. In 2004 - Jan -- there was only a tiny dip -- before sideways - up into March. In 2009 - Jan -Feb -- we had a 10% Correction in 18 days - 12% in NYSE Index. That was as much as the whole 8 month correction of 2004 - into Oct. The Numbers got very Negative "Extreme" at the 2/5 Low. The sense of panic was there again. In 2004 -- Kudlow and Cramer - talked in March / April -- of New highs immediately - No lower lows. That was the mood back then. It took 3 or 4 nasty dips -to wash out the Bullishness - by Aug - Sept – Oct. Now - in 2009 - the Bullishness is growing in April. Some measures are off the charts. But - others are still moderate. It's a tricky "new day". I wasn't there - in 1932 - 1937 -- and things were Much different then. So - we use All our tools - to keep afloat - and Sane.

THE MARCH MOVE

2010-03-18T07:24:00.000-04:00

I noted selling Calls approaching 1000ET. I'm not ready to get Short big- There are two more days til Options Exp. All the big avgs except DJIA have taken out the Jan highs. SP-500 got close to next target. There is lots of talk of 1200 now - then 1250. Most talkers are now Looking Up. It's been 27 days since the "Extreme Low" on 2/5. The last move up from a similar low was from 11/2/09 to 1/11/10 -- 47 days -- But -that had the added time boost of the Santa Clause Rally. Still - it's on the charts. In Jan - after the 1/11 "Extreme Positive" peak - the big avgs chopped for 5 days before beginning the 18 day correction to 2/5. We are now just a few weeks from start of Q1 Earnings Season. AA reports on 4/12 - per Yahoo. Earnings Warning Season will begin next week or two - just after Options Exp. It seems there will not be a flood of Warnings for Q1. Analysts have been fairly cautious up to now. But - right now - they are getting more positive. That's in tune with the TV Talkers now turning their eyes Upward to 1200 and beyond. I've noticed lots of Targets raised - few lowered. But that's normal in a Bull mkt. We've seen some differences - between 2010 and 2004. Some big. In 2004 - by 3/17 DJIA had already fallen off the High of the 1st Leg - moving toward a little dn-up-dn Low on 3/24/04 . Then came 11 day Rebound Rally into April 6 - Peaked just at the start of Earnings Season. Then mostly sideways into late April -- before down into May. There's a difference in the Fed actions also. By March, 2004 - the Fed had already made noises of tightening ahead. The first of those came in Summer, 2004. In Q1, 2004 - the Housing Boom was in full force in the USA as the Underlying power of the Bull mkt. That was mostly a Domestic thing - with lots of blue collar skilled workers employed to build all those houses and shops. In Q1, 2010 - we are concerned that there may be another Round of Housing price declines - potentially harming American Consumers in both asset wealth - and in Confidence. We now look toward China and other fast growing economies - to take our Exports - as a source of Growth for the USA economy. Ok - some Positives - some Negatives -- as always. Many times - I've discussed the "slam-down" declines - we often get - just before Earnings Season. Those lows help establish a ST floor to trade from - as the bottom of a ST range. In March, 2004 - there was a 3 day dip - after Options Exp week- that put in that "slam down Low" - ahead of Q1 Earnings. 3/24/04 was the end of that Low.
In 2010 - most Avgs are making NH52 during Options Exp week. So the pattern can't unfold just like in 2004. I'll be watching for a dip after Options Exp -- maybe just a PB from the New Highs. Maybe it will devleop into more down -- but that will likely wait till after Q1 Earnings Season- maybe in May. That still leaves us to negotiate the next 2.5 days of this Options Exp week. With Bigs bent on putting in some big Scouts up on the Charts. Since 2/5 - MD Y and IWM have led to the upside. Small and Midcaps. Those avgs - and their ETFs - made signif NH52 already last week - before DJIA NYSE SP500 had reached the Jan highs. DJIA is going last - as it often has in the past. now peeking Over the Jan highs. And -- we are now 2.5 days from Options Exp Day. I'm on the lookout for a Neg reversal any day. I can imagine - if the timing is about right - the decline will be blamed on the Health care bill. If it passes - one idea of blame. If it fails - maybe "sell the news" on the failure -- another kind of blame. We also have lots of new talk of Trade Protectionism. That will be a good "reason" for a decline. But - it's all speculative for now. Stocks are still in Rally mode at the moment.
I noted selling Calls approaching 1000ET. I'm not ready to get Short big- There are two more days til Options Exp. All the big avgs except DJIA have taken out the Jan highs. SP-500 got close to next target. There is lots of talk of 1200 now - then 1250. Most talkers are now Looking Up. It's been 27 days since the "Extreme Low" on 2/5. The last move up from a similar low was from 11/2/09 to 1/11/10 -- 47 days -- But -that had the added time boost of the Santa Clause Rally. Still - it's on the charts. In Jan - after the 1/11 "Extreme Positive" peak - the big avgs chopped for 5 days before beginning the 18 day correction to 2/5. We are now just a few weeks from start of Q1 Earnings Season. AA reports on 4/12 - per Yahoo. Earnings Warning Season will begin next week or two - just after Options Exp. It seems there will not be a flood of Warnings for Q1. Analysts have been fairly cautious up to now. But - right now - they are getting more positive. That's in tune with the TV Talkers now turning their eyes Upward to 1200 and beyond. I've noticed lots of Targets raised - few lowered. But that's normal in a Bull mkt. We've seen some differences - between 2010 and 2004. Some big. In 2004 - by 3/17 DJIA had already fallen off the High of the 1st Leg - moving toward a little dn-up-dn Low on 3/24/04 . Then came 11 day Rebound Rally into April 6 - Peaked just at the start of Earnings Season. Then mostly sideways into late April -- before down into May. There's a difference in the Fed actions also. By March, 2004 - the Fed had already made noises of tightening ahead. The first of those came in Summer, 2004. In Q1, 2004 - the Housing Boom was in full force in the USA as the Underlying power of the Bull mkt. That was mostly a Domestic thing - with lots of blue collar skilled workers employed to build all those houses and shops. In Q1, 2010 - we are concerned that there may be another Round of Housing price declines - potentially harming American Consumers in both asset wealth - and in Confidence. We now look toward China and other fast growing economies - to take our Exports - as a source of Growth for the USA economy. Ok - some Positives - some Negatives -- as always. Many times - I've discussed the "slam-down" declines - we often get - just before Earnings Season. Those lows help establish a ST floor to trade from - as the bottom of a ST range. In March, 2004 - there was a 3 day dip - after Options Exp week- that put in that "slam down Low" - ahead of Q1 Earnings. 3/24/04 was the end of that Low.
In 2010 - most Avgs are making NH52 during Options Exp week. So the pattern can't unfold just like in 2004. I'll be watching for a dip after Options Exp -- maybe just a PB from the New Highs. Maybe it will devleop into more down -- but that will likely wait till after Q1 Earnings Season- maybe in May. That still leaves us to negotiate the next 2.5 days of this Options Exp week. With Bigs bent on putting in some big Scouts up on the Charts. Since 2/5 - MD Y and IWM have led to the upside. Small and Midcaps. Those avgs - and their ETFs - made signif NH52 already last week - before DJIA NYSE SP500 had reached the Jan highs. DJIA is going last - as it often has in the past. now peeking Over the Jan highs. And -- we are now 2.5 days from Options Exp Day. I'm on the lookout for a Neg reversal any day. I can imagine - if the timing is about right - the decline will be blamed on the Health care bill. If it passes - one idea of blame. If it fails - maybe "sell the news" on the failure -- another kind of blame. We also have lots of new talk of Trade Protectionism. That will be a good "reason" for a decline. But - it's all speculative for now. Stocks are still in Rally mode at the moment.

WHO'S THE MARK????

2010-02-11T08:55:00.000-05:00

A key to making the rules work is an understanding of the psychology behind the
Rules, knowing where they work best, and knowing if that is congruent with our
personal trading style. The psychology behind the rule is what it is, in part,
because the psychology of the market itself is what it is. I don’t think we can
make our rules work at their best without a solid understanding of this
underlying market psychology.

Critical to that assessment is understanding our own personal psychology. No
matter where you personally are on the scale of trader evolution or your
application of your developing skills, you will eventually discover that your
own personal psychology is by far the single most important variable to your
lasting success as a trader. Indeed, only a trader who accepts this point of
view about his own psychology will be able to successfully make his trading
rules work—because the rules are self-created, self-enforced, and
self-defeating. Without a solid grasp of both market psychology and personal
psychology, your results will most likely be net losses, even if you have a
winning systematic approach and good rules.

Regardless of your current level of sophistication or trading background, there
is one indisputable fact about the underlying structure of trading markets that
you need to thoroughly understand before you place yourself at risk. Futures,
options on futures, and cash foreign exchange (FOREX), the markets most readers
will be trading are all zero-sum markets.

The price action and cash management take place in an environment where no money
is ever made or lost; gains or losses accrue as a cash debit or credit between
accounts on deposit after trades are cleared. In other words, a winning trade is
paid its cash credit from the exact opposite losing trade. The clearing
corporation of the exchange simply assigns a cash credit to the account with the
winning trade and assigns a cash debit to the account with the losing trade.

In the final analysis, it is the losers who pay the winners. You cannot accrue a
cash credit increase in your trading account unless some other trader (or group
of traders) somewhere, trading through the same exchange with you in the same
market, has lost the exact same amount. In order for you to make $10,000 from
your trading, someone else (or a group of someone elses) had to lose $10,000.
You can’t participate in Zero sum trading without accepting that risk.

It is the very nature of zero-sum transaction trading that makes using and
applying trade rules so critical to lasting success. If you personally don’t
know enough about what you are doing, or the risk you are really taking, you
will be the loser who pays some other winning trader. The market does not
function any other way.

Let’s take a look at the psychology behind price action. I believe this is much
deeper than the simple fact that for every winning trade there is a loser.
Zero-sum trading presents some fascinating insights into crowd behaviour and
what is really needed or required to exploit price action profitably.

Let’s start with the basics:

Buyer→ $2.33 ←Seller
You enter a buy order to open a position in corn at $2.33/BU. In order for you
to receive a fill on your buy order, it must be matched against a sell order at
that price. For the sake of illustration, let’s assume there is also a sell
order to open a position. Therefore, two separate traders have put themselves at
risk, and a new long position and a new short position are now active. What
happens next?

Another set of orders comes in, and those are matched, but if at that moment
there is an imbalance in the order flow, the market is requoted to reflect the
imbalance. In other words, if there are more buy orders left over after the sell
orders are matched, the market ticks higher and is matched with sell orders at
higher prices, if they are there. The remaining buy orders are then matched at
that new higher price. If there are more buy orders left over again, another
tick higher results.

Of course, this illustration is conceptual. As most traders know, those buy and
sell orders are constantly coming in and are combinations of stop orders, limit
orders, and market orders from both sides; the mix is always changing. What we
are concerned with is the pressure on the price as the net order flow is
processed from one moment to the next. If the order imbalance remains on the buy
side, the market will continue to tick higher until the imbalance is corrected
and the buy/sell orders are about evenly
matched again. If, at that point, the sell orders overwhelm the buy orders, the
market will begin to tick lower and will continue to do so until the buy and
sell orders again become about evenly balanced with the sell orders.

The ebb and flow of price action comes from these order imbalances, and what we
call an uptrend or downtrend is in reality a net imbalance lasting for some
period of time.

So let’s assume after a period of time, the net order imbalance for that period
of time has resulted in a new price for corn at that point:

→ $2.38/BU ←

Your open-trade long now has a profit of $0.05 per bushel. The open short from
your executed order (the other trader speculating) has an open-trade loss of
exactly the same $0.05 per bushel. If, at that exact moment, both of you choose
to liquidate your positions, and your orders offset each other at that point,
your account will be credited and his account will be debited the exact same
dollar amount (less any fees, of course).

This is all easily understandable, but there is a completely other world at work
in that process. That other world is the psychology of the traders involved and
how that creates their urge to action resulting in them placing the orders in
the first place.
What is not immediately apparent in price action is perception—how that net
credit or debit is affecting the account holder, what that account holder is
thinking, and what he must do next. What is certain is that at some point, both
traders must liquidate; no one can stay in the market forever.

When the losing position is liquidated at some point, the losing trader must do
an equal but opposite trade against himself. In other words, if I have bought
the market, and prices are moving lower, I must sell to liquidate my loss,
adding power to the dominant force in control of the market at that point. My
mental and emotional state is in direct conflict with my desire for a profit,
and my only choice really is to liquidate
now or risk a bigger loss. If I “wait it out” I am trying to anticipate the
market will reverse and eventually show a profit on the trade for me (thereby
making a loser out of the original short who initially had the open-trade
profit).

But all of this thinking or emotion is going on inside my mind and has nothing
to do with what is driving the market. In order for prices to advance or
decline, there must be more orders on that side of the market Prices can advance
only if there are more buy orders than sell orders at that moment. Prices can
decline only if there are more sell orders than buy orders at that moment. How
that order flow personally affects my account balance or my emotional state does
not concern the net order processing function of the market. In any attempt to
profit from any perceived opportunity in a zero-sum transaction market, you
simply must be on the right side of the eventual net order flow from that moment
forward until you liquidate. If you are on the wrong side of the net order flow,
you will have an open trade loss until you liquidate.

None of what happens inside the mind of the trader during that time can affect
the market in any way; it can only affect the net balance controlled in some way
by the trader in some way. This is why you must have rules and know how to
follow them. You cannot know for certain until later, after you enter your
position, whether you are on the right side of the net order flow.

The important thing to remember is that there is an emotional pressure at work
in most traders that will influence their perception of price action. They all
entered their trades expecting to win, but in most cases they will have to
consider liquidating at a loss. All of the emotional or psychological stress
involved in trading boils down to “When do I get out?”

Because the owner of the winning position has a lead on the market, he is under
less of this stress than the loser. In most cases, when the pain of holding the
losing hand gets too big for the losing trader, he will liquidate in the same
direction as the winning position. A simple example is a market slowly advancing
higher as more buy orders overwhelm the sell orders, until the market hits the
liquidating buy stops above the market placed by the sellers who are holding a
losing position. The market now
advances further on that buying pressure.

None of the above-described background to price action has anything to do with
market study, risk control, trading systems, or technical analysis. It has to do
only with the fact that if you are going to be in the market, you run the risk
that you will be on the wrong side of the order flow. What does that do to the
trader’s emotions? What will he do? What will you do?

Because you cannot profit consistently in a zero-sum market unless you are on
the correct side of the order flow, your entire analysis and trade plan must
take into consideration some way to identify where the order flow is and what to
do if you are on the wrong side of it. The issue of cutting losses is
essentially to have some method of negating any emotional conflict created by a
losing trade, in such a way that you will not hesitate to get out of the way of
the actual order flow if you are on the
wrong side of it. Part of how you participate on your trade, regardless of your
unique approach to finding a trade opportunity, must always answer the question:
“Where is the order flow?” Most of the studies done on net trader performance
come to the inescapable conclusion that around 90% of traders will close their
accounts at a net loss. None of those traders expected to lose, and yet they
did. Part of their losses came from the emotional conflict created in their
minds when the market moved against them, creating pressure on their execution.

Every trader has had the frustration of finally throwing in the towel and
liquidating his position, only to see the market reverse shortly thereafter and
prices move favorably, if only he had stayed in. All that really happened is
that the order flow dried up in one direction and then turned the other way. For
that particular trader it resulted in a net loss to his account. That particular
trader will now be tempted to “just ride it out” on
the next trade until prices eventually return. Of course, the one time this
doesn’t happen will result in a total loss in the account. It only takes one
“just ride it out” to ruin that particular trader.

To avoid being that trader, and to master the game of successful speculation,
you must know what you are really capitalizing on when you identify a trade
opportunity. You must accept and trade from the point of view:

“Where is the order flow?” and you must have a method of getting out of the way
when you are not on the right side of the order flow. All the analysis or study
you could ever do must answer these two central questions.

One assumption you can make to know your game is that most traders do not know
the game they are playing. About 80 to 90% of price action is simply the losers
liquidating their losing trades. When you begin each day, and before you place a
trade, ask yourself this question: “Where is the loser?”

In the final analysis, the game you are playing is “Beat the Loser.” The great
trader J. P. Morgan said it best: “Anyone who is unaware of the fool in the
market probably is the fool

Trading Rules That Work: Trading Rules That Work: The 28 Essential Lessons Every
Trader Must Master (Wiley Trading), by Jason Alan Jankovsky (Author)

Regards,

Patrick Stockhausen, BA (Hons), MPNLP, BPNLP, DHE, NHR

http://ultimatetradingpsychology.com/sales1.php

TRADING SURPRISES

2009-11-15T08:37:00.001-05:00

BEARISH GOLD

2009-10-27T07:11:00.001-04:00

Gold did a double top failure last Friday at $1068.50
Today gold broke the hourly 50 SMA.
And at 10 AM did a failure of the hourly 50 SMA on a rally retest of the average, that took it to new week lows.
The daily charts broke the 20 SMA.

I am bearish gold now.

Gold broke the MOBO bands to the down side on the daily, four hour, and hourly charts Monday.
Tuesday should/could see a bounce.
Opportunities to short gold, or exit any longs in the physical metal, or in the equities will be in this bounce.
ABX, NEM, GG, and others broke their daily 50 SMA.

Rally resistance levels are now at $1046 and $1054 for the metal and back to the 50 SMA for the stocks.
My new low targets are now in the $1007 to $1010 area. A break of that target would send us to the $975 target.

All this downside projection will only happen with a continued rally in the US$ that started mid-day today. Too many are on the short side of the US$ canoe… it is likely to flip the shorts out before going lower.

After this next major pullback in gold I see new market highs for gold, and the US$ dropping to the 72 -70 range.
Printing money has not stopped and will not stop. Hence my longer term outlook after our gold flush out of the late entry longs on gold, and the weak hands give up.

__._,_.___

A PREDICTION OF HOTTO

2009-10-19T06:13:00.000-04:00

I've discussed the 2003 Bull market Leg several times since May, 2009. It's helped with some Timing and Direction. Most recent was the "Slam Down" decline in late Sept - just before start of Earnings Season. In 2003, the corresponding Slam down decline - ended on 9/30/03 - a Tuesday. The rally after that - went up to a Gap -Up Open on Wed, 10/15/03 - during Options Expiration Week in Oct. 2003. The big Averages ended down that day - and the next 2 days -- into Options Expiration day on 10/17/03 . Then came a bounce on Monday - after Options Expiration Friday-- then down for the rest of the week - to Friday, 10/24/03. Then came another bounce - from about sma50 -- back to UBB early November, 2003-- Then one more decline -- to Just before Thanksgiving Week, 2003. From Thanksgiving Week, 2003 to January 2004 was another Monster runup-- just as the Bears were all sure we had seen "The Final Top" in Oct / Nov. We were there. : ) I remember some urgent Sell signals came out that weekend before Thanksgiving Week in 2003. It was really sweet - to be among very few who got that one right : ) May we be so lucky again in 2009 : )

FROM OD

2009-10-14T20:10:00.001-04:00

OptionDragonGuru | October 13, 2009 1:56 PM -->

Raymond James' chief investment strategist Jeffrey Saut is back with his weekly Investment Strategy. Last week, his piece 'Octobered?!' looked at returns during some of the market's historically worst months. This week's piece definitely caught our eye because Saut calls the passage below "two of the most important paragraphs I have ever encountered in more than 40 years studying markets."

Taken from Stock Profits Without Forecasting by Edgar S. Genstein, here are the two paragraphs he is referring to, started with the following quotation: "The absolute price of a stock is unimportant. It is the direction of price movement which counts.”

“During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top is passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose. In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top.

As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transactions will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.”

Definitely food for thought and especially relevant given the massive rally we've seen from this year's March lows. Embedded below is Saut's market commentary for this week, "Direction Dictates": www.marketfolly.com i love this blog, you should have it sent to your email.

HOW TO GET OUT OF SHORTS

2009-08-21T09:38:00.000-04:00

SUMMER TIME UPDATE

2009-08-21T09:07:00.002-04:00

The shows a likelihood of a turn in the market is due shortly. Been waiting for a market pullback since we visited Viet and his family on Whidbey Island. I've sold most of my positions the past week. I plan to buy back once the pullback is finished. However, it has to begin first...and that's what I've been patiently doing. today is OPEX. We'll see what Monday brings.

ROBERT PRECHTER

2009-08-20T09:16:00.000-04:00

DIRECTIONAL TRADING

2009-05-04T10:17:00.002-04:00

A nice write-up from Phil's world.
http://optraders.googlepages.com/5mastrategy4

1ST 100 DAYS

2009-04-30T09:13:00.001-04:00

Here's a comment after last night's Obama's speech. Today marks this presidents 100th day....

Regarding the Fed’s statement of policy yesterday (which were pasted in yesterday’s Afternoon Note), David Rosenberg, an economist at Merrill Lynch (now part of Bank of America) published some interesting comments late in the day.

Mr. Market is to be respected, but he is not always correct

We find it rather difficult to square today’s Fed press statement with the amazing reversal in investor sentiment towards euphoria over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the righthand side of the ‘V’. Mr. Market is to be respected, but he is not always correct.

Fed has a more somber forecast than Mr. Market

The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious today (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market.

Disconnect between Fed & market’s ability to sustain rally. Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.

Never in the past 60 years have prices dropped this much

As for Treasuries, the selloff continues unabated, and comes on a day when real GDP contracted at over a 6% annual rate with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span.

Fed views deflation as the primary risk

Perhaps the market was expecting that the Fed would announce more in terms of the size of its bond-buying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we stated this morning, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in today’s statement, but what it did not change was its view that deflation remains a primary risk – “the Committee sees some risks that inflation could
persist for a time below rates that best foster economic growth and price stability in the longer term”.

Too much slack in the economy to worry about inflation

The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds.

PRECHTER SPEAKS

2009-02-25T18:59:00.001-05:00

http://www.bloomberg.com/avp/avp.htm?N=av&T=Prechter%20Sees%20%60Two%20More%20Years'%20of%20U.S.%20Stock%20Bear%20Market&clipSRC=mms://media2.bloomberg.com/cache/vqnWdbAyUyzI.asf

BASIC ECONOMICS

2009-02-10T19:38:00.001-05:00

You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it. Dr. Adrian Rogers

WAVES

2009-02-03T16:43:00.000-05:00

PREDICTION 2009

2009-01-02T10:35:00.002-05:00

Ok, so with that cheery backdrop, here you go with my predictions for 2009.... and I will prefix this by saying this is a list I hope proves to be entirely incorrect. Perhaps there really is a Unicorn that craps skittles even though I've yet to find it - this is one round of predictions I'm willing to take a zero score on come December 09.

The economy will not recover in 2009. Job loss will continue through the year and unemployment will reach 8% in the "headline" statistic by the end of the year. U-6 (broad unemployment, or the closest to "real" unemployment without government "cooking") will top 15%. All the "talking heads" are predicting a turnaround in the second half of 2009. They will be wrong. Look at their records for 2008 - all of them were predicting closes at or above 1500 for the S&P 500. Why does CNBC continue to put people on the air who, if you listened to them, cost you 40% or more of your money?
Deflation, not inflation, will become evident well beyond housing. Other capital goods beyond housing will see real price declines for the first time since the 1930s. Debt is inherently deflationary; the "hyperinflationists" will once again be shown to be wrong (how many years running will it be now?)
Housing prices will continue to decline. I believe we're about halfway done with the price correction. Those who think we will turn this in 2009 are wrong - unless we get an all-on collapse in prices in early 2009, which I do not believe will occur. I've heard several claims we will have positive year-over-year home price changes in 2009. I'll take the other side of that bet.
The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse, severe instability in the dollar at some point in 2009.
GDP will post a 12-month negative number and there is a decent shot that we will actually see an official depression print before the end of 2009, defined as a 10% decline peak-to-trough.
The Stock Market has not bottomed although you may think it has for a few months. The annual range will be quite extreme; I would not be surprised at all to see 1,000 touched on the SPX in the first part of the year. I believe the SPX will at least touch 500 in the next 12-24 months and the current bottom will not hold. It is possible that we could see a crash to SPX 300 and DOW 3,000 some time this year, probably after the spring (when the "Obama Halo" wears off - if it isn't blown off by economic events first.) Yes, this means I am predicting a fifty percent swing in the SPX in 2009. Lots of money to be made as a trader if you're quick and good, but an absolute minefield if you're a long-term investor.
Precious metals will not be a safe haven. The callers for $1600 and above on gold will be wrong, unless there is a major military conflict. I do not rate that probability as particularly high, but it is an event (along with a major terrorism incident - nuclear or biochemical - that would cause a rocket shot in Gold prices), so I am hedging that call. The risk of this sort of "response" to the economic crisis is, however, real, and will rise significantly going into 2010 and beyond. We'll revisit this one (a major war) next year.
The Dollar will not collapse. This is not because we're in great shape or will truly recover, it is because the rest of the world is in worse shape than we are. Last year pundits were all calling for the dollar to collapse to 40 - it didn't happen. Now they're calling the dollar's strength a "Bear market rally." Nonsense; the simple truth is that while we're in bad shape the rest of the world is literally on the precipice of a full-on collapse. European banks are more-levered and less-transparent than our banks as just one example.
The pound or euro - and perhaps both - will likely be where the FX dislocation initiates if it occurs. I see the potential for the pound and euro to both reach par with the dollar, although I'm not going to go that far out on the tree limb and predict it - yet. Needless to say that would rocket the Dollar Index but it won't be our strength that does it - it will be their weakness.
The US Consumer will go from a negative savings rate to a seriously-positive one. I am predicting 4% in 2009 but it could go as high as 10%. The math on this is simple - the "consumerist legion of more" has run its course and all that's left is debt. It hurts and bad; expecting the American Consumer to cut off his other arm is just plain dumb. By the way this is a good thing in the longer term for America once the excess debt is forced out and defaulted through the system.
Commercial Real Estate will effectively collapse and most commercial Real Estate REITs will be either insolvent or limping on life support. There will be calls for bailouts (which may be attempted; the calls are already starting to be heard) but it won't matter - a failed business is a failed business, bailout or no, and overcapacity must go away before sustainable business conditions can return.
Along with the above, expect 10% of all retail stores to close, and that number could go as high as 20%. That's not going to be fun; there will be hundreds of malls that wind up literally shuttered across America. Stay away from most retailers and property groups as investments. Firms like SPG and VNO are levitating on the strength of their dividends (7-10% yields at present); I believe this is a sucker play; if retailer defaults force dividend cuts (and I believe they will) the commercial REITs will go straight into the toilet.
Several states will get in serious financial trouble and outright default of one or more is possible in 2009. California leads this parade. But even if there is a default on a state basis, the effect will be highly localized, as county and municipal governments vary in their wisdom and budget process. The real pain comes in state-wide social and educational programs. Be very careful if you are in municipal bonds or thinking of getting back into them (I recommended they be dumped in 2007 - look at what has happened to the closed-end funds in 08! Aieeee!) as the default risk is VERY REAL. If you're buying individual issues and do the work to determine not only the risk of default but also the likely recovery if they do default there are some good deals out there - but only if you're doing the work. "Trust me" (as in buying funds, whether mutual funds or closed-end stuff) is very dangerous.
Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.
If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job and/or income stream is not in any danger of collapsing.)
Those who have said that the corporate bond market is being "unreasonable" in its expectation for defaults will start to look like the jackasses they are. Actual default rates (not projections) on non-investment-grade debt will skyrocket starting in 2009 and there will be no sign of it turning around this year. If you're playing in this area of the market thinking that "the worst is behind us", I hope you like walking around bald as the haircuts handed out to folks like you will be especially severe and delivered with a straight razor.
The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get.
General Motors and Chrysler will fail to meet their targets and it will be labor that sinks the deal. At least one and probably both will wind up in some form of bankruptcy in 2009. The UAW is insane; Gettlefinger needs to be strung up by his genitals and pelted with rotten tomatoes by his union "brothers", and if they had a lick of sense they'd have already done it. They obviously don't. I give this mess six months tops, with Ford as the only possible survivor. The recent GMAC games show exactly how desperate they are; 0% 5 year loans to people with 620 FICO scores are flat-out insane and the default rates on those loans are going to wind up in economics textbooks five years hence.
Protectionism and currency manipulation will rear their ugly heads in 2009, originating not here but in Asia as their economies go straight into the toilet. China and Japan are at severe risk here.
Commodities will appear to be headed for a new bull market but this will turn out to be a false hope as demand continues to collapse. Attempts to manage oil output to prop up the price will fail. Several oil-producing nations will find themselves in serious economic trouble, with Russia being in the lead but by no means alone.
Sovereign debt defaults will number at least three with many other nations on "watch" for same; we had one last year (Iceland.) Noise about a US "AAA" downgrade will continue. Highest on the list for probables are Russia, which needs oil at roughly double its current price - and stable - to be financially viable. Not going to happen in the near term.
China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They'll manage to tamp it down - this year. Don't take a bet on that holding together longer-term. Those who think China will be "ok" are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to "take it in both holes" down the road, but the worst of it won't be in 2009 - that is still a year or two in the future.
Foreign uptake of Treasuries will be choked off - by necessity. It won't be because they want to screw the US (although they should have a long time ago, given our profligate and unsustainable habits), it will be because they will be forced to redirect their resources inward as their own economies collapse.
"The City" (London to be precise, Britain generally) will be recognized as getting it "worse than we are" (in America.) This will be the first of many validations of my thesis "we're screwed, they're gang-raped."
Things will get "revolting" in a number of nations. Not here in America. Yet. If we're lucky the American Sheep will wake up and stage some of that peaceful protest stuff I outlined above. If we're not so fortunate 2010 could be really bad.
In terms of recommendations its simple - rallies are to be sold, cash is to be raised and prudence is to be practiced in your own personal financial affairs. Don't get creative in all things finance, get stingy and prudent. Your personal financial survival could well depend on it.

TRADING RULES

2008-12-27T15:06:00.001-05:00

Some of the rules were quite pertinent to stock trading, with the substitution of an occasional word. In honor of Sir Seeker, I offer some Rules of Trading:
1- Every takeoff (buy) is optional. Every landing (sell) is mandatory.
2- Flying (trading) isn't dangerous. Crashing is what's dangerous.
3- It's always better to be on the sidelines wishing you had bought the stock that is up there, rather than down there wishing you hadn't bought that stock.
4- A good landing (sell) is one from which you can walk away. A "great" landing (sell) is one after which you can use the plane (money) again.
5-Learn from the mistakes of others. You won't live long enough to make them all yourself.
6- Good judgment comes from experience. Unfortunately, experience usually comes from bad judgment.
7- Keep looking around. There's always something you've missed. (earnings report about to be released? Ex-dividend?)
8- Never let an aircraft (stock) take you somewhere your brain didn't get to five minutes earlier. (Refer to Rule 1: do you know where/why you are going to sell?)
9- There are 3 simple rules for making a smooth landing (good exit). Unfortunately, no one knows what they are.
10- You start with a bag full of luck (money) and an empty bag of experience. The trick is to fill the bag of experience before you empty the bag of luck (money)

SNP TRADER

2008-12-07T21:43:00.000-05:00

KEY REVERSAL

2008-11-14T21:36:00.001-05:00

Key Reversal requirements:
1. The Open must be below yesterday's Close,
2. The day must make a new Low,
3. The Close must be above yesterday's High.
4. Volume must be significantly higher than the prior day.
5. The signals are most reliable if they occur after a strong trend.

Edwards and Magee (authors of the highly regarded classic text -- Technical Analysis of Stock Trends) state that key reversals are short-term trading patterns only.
Probabilities of Key Reversals continuing the next day.
Note: for Downward Key Reversals The probability that the next day closing price is lower than the downward Key reversal Close has been 49% for Down Key Reversals. No data on upward Key Reversals, but the downside would suggest today a toss up on a positive close.

Key Reversals reflect changes in investor psychology that have a very short-term influence on future prices - typically less than 10 bars.
They are normally not suitable as signals for long-term investors unless viewed as monthly bars.
Our third day candle, this next Monday, will be the most important for determining if this turn is powerful. It will need to close over today close and high for yesterday to have meaning.
That begs the question what about tomorrow, that can be either up, or down, as long as we don't take our yesterday's Key Reversal low.
The large change in position of the opening and closing prices signifies that one side of the market has lost complete commitment and control has shifted to the other side of the market.

You can find other key reversal candlestick formations in the Japanese Candlestick literature

Today it is most likely that we get a good pullback from Thursday's close in the morning and a negative close for the day.
The real test of the markets will be on Monday, and can it take out Thursday's high.

A positive Key Reversal Day consists of the following attributes.

1. It must occur as the latest in a decline of at least several days.

2. It must carry into new low ground for that decline.

3. It must then rally to a level higher than the previous close. The higher the better.

4. It must close with an advance for the day.

5. It must close in the upper half of its own range for the day.

6. Volume must increase markedly.

KEY REVERSAL

2008-11-13T21:31:00.000-05:00

A positive Key Reversal Day consists of the following attributes.

1. It must occur as the latest in a decline of at least several days.

2. It must carry into new low ground for that decline.

3. It must then rally to a level higher than the previous close. The higher the better.

4. It must close with an advance for the day.

5. It must close in the upper half of its own range for the day.

6. Volume must increase markedly.

MISTAKES ARE FOR HUMANS

2008-10-31T07:19:00.000-04:00

Mistakes Are the Downfall of Most Traders

by

Van K. Tharp, Ph.D.

In my experience, I find that it is very easy to design a system that will produce great returns (even 100% or more). What?s difficult is actually trading the system and getting those returns. In this article, I?ll show you how easy it is to develop a great system, how mistakes can be your downfall, and how to correct the mistakes you make.

Thinking of Your Results in Terms Risk-to-Reward

One of my fundamentals of trading success is that you must have a predetermined exit point before you enter into a trade. This exit point represents your worst-case risk in that trade. Let?s call risk, R, for short, and look at a few examples.

Suppose you decide to by something at $40 and sell it if it drops 10% to $36. Your risk in this case is $4. If you are buying stock, it means your risk is $4 per share. Now suppose you have $100,000 in equity and want to risk 2% or $2000 in this trade. This means that you can afford to buy 500 shares of stock (i.e., divide your total risk of $2000 by your per-share risk of $4 and you get 500 shares). Notice that you would be buying $20,000 worth of stock, but that your initial risk would only be 10% of that (because of your 10% stop) or $2,000. I?m not recommending any of these numbers (i.e., 10% stops or 2% risk); I am merely using them as examples.

Let?s look at some more examples. Suppose you have a $200,000 portfolio. You want to buy 10 stocks, each with a 1% risk and 10% stops. You can do that and you will be fully invested. Now suppose that you have bought those positions and you get the following rules as shown in Table 1. The table shows the profit and loss on each position and then expresses the result as a multiple of the initial $2000 risk. This is an example of presenting your results as R-multiples.

There are several key things you should look at in this system. First is the expectancy of the system, which is the average R-multiple produced by the system. In this instance, the expectancy is 1.47R. When your sample is large enough, and this means 30 to 100 examples, then your expectancy will also tell you what you can expect to make, on the average, over a large number of trades. Half of your results will be above the expectancy and half of your results will be below the expectancy, but on the average over many trades your results should equal the expectancy.

Table 1: Expressing Your Results as R-multiples

Trade Profit/Loss R-Multiple (1R =$2000)

1 -$1825 (0.91)

2 -$600 (0.30)

3 -$1600 (0.80)

4 -$1400 (0.70)

5 +$12,800 6.40

6 -$1280 (0.64)

7 +$9300 4.65

8 +$2350 1.18

9 -$3600 (1.80)

10 $14,200 7.10

Totals $28,345 14.18

Average $2834.50 1.42

Let?s say that your expectancy over 100 trades is 1.5R and that your system produces about 60 trades per year. Under those conditions, you might expect to make about 90R (i.e., 60 times 1.5R = 90R) per year. And if you risked 1% of your total current equity on each trade, then you could easily make 100% per year.

?But wait,? you say, ?this is really stretching things. For example, 90R is the average return you might get, but half the time the return will be better and half the time the return will be worse.? Well, my response to that statement is that 90R per year is a reasonable result for a good system. In fact, I?ve seen many systems results that are much better than the results in this example. A system that could deliver a return of 100% per year is not that difficult to design.

Remember that we are now thinking in terms of R-multiples. A 10R gain now means that you only have to make 10 times your risk, not 10 times your investment. And since your risk was only 10%, it means that if we double our investment, we have a 10R. And in my experience, it is not that difficult to develop a system that has occasional gains of 10R or more. The big problem is that most people, once they have developed such a system, cannot trade it effectively.

Why Isn't Everyone Making These Returns?

Because people make mistakes. The average person will never achieve anywhere near the expected return from their system because they make mistakes. So what is a mistake? My best definition of a mistake is not following your rules. For people who don?t have any written trading rules, everything they do is a mistake. So let?s look at some common mistakes. These are mistakes that I see professional traders make (not just the average person) all the time.

Not taking a trade that is signaled by your system because you are afraid, not automated, or just are not paying attention.
Taking a trade because of emotions or excitement or just not realizing it.
Keeping a mental stop and then letting the price run right through it.
Trading several systems at the same time with conflicting results and doing it in the same account.
Having position sizing that is too large. (2% is pretty risky, but sometimes people risk 5-10% or more).
These mistakes are very costly. Our preliminary research suggests that an average mistake is worth about 4R. I don?t know if that number will stand up over many, many examples, but that?s my current best guess for the value of a mistake. So what if you make two such mistakes each month? That means you are making 8R worth of mistakes every month. Again, I don?t know how many mistakes the average trader will make, but I do know that the more active you are, the more mistakes you will make.

If your mistakes add up to 8R each month, then you are making 96R worth of mistakes each year. And if we apply it to the original example I gave, in which your system makes 90R per year, you have a net result of negative 6R. Thus, you?ve now turned a winning system into a net losing system by your mistakes. And what usually happens is that you decide that your system is broken and stop trading it. But the system is perfectly fine; it is just your mistakes that are the problem.

Notice that you are making 60 trades each year and about 24 mistakes. In terms of mistakes, we might say that you are 60% efficient. But in terms of results, you are in the hole, so we?d have to call you totally inefficient.

Mistake Examples

One of the keys to correcting mistakes is to recognize them. For example, I sometimes play a marble game at talks. Marbles are pulled out of a bag, each representing a different R-multiple of a trading system. Each marble is replaced after it is pulled. The expectancy of the game is 0.8R and usually we do 30 trades. That means that everyone should be up (on the average) 24R at the end of the game. However, when starting with $100,000, I?ll see a third of the room go bankrupt and another third of the room lose money because of position sizing mistakes. For example, if you risk it all on the first trade and you get a 1R loser, then you are bankrupt. You cannot play any more and have no chance to get the 0.8R expectancy.

But what do most of these people say when they play the game? First, we have the justification response: ?This isn?t like real trading; it?s just a stupid game.? Next, we have the guilt response: ?I was a stupid idiot.? And last, we have the most common response, the blame response: ?I lost money because the marble pull was bad and that guy pulled out a losing marble for me. I?m just unlucky.?

In this instance, most people don?t even recognize their mistakes because they are blaming, justifying, or putting themselves through a guilt trip. Yet the mistake, of course, was that they went bankrupt because they bet too much on the marble pull. And if you don?t recognize your mistake, how can you correct it? You cannot. Instead, you?ll probably repeat it until you give up.

Let?s look at another example that represents real life trading. Let?s look at a fictional trader, Morgan Green. She has a system that produces 100R each year, but makes a lot of mistakes that she doesn?t recognize. Let?s look at a few examples of her mistakes.

She hears a stock recommendation on the television, gets excited about the stock and buys 1000 shares. She loses money. What?s her mistake? In this case, she didn?t follow her system. Instead, she bought impulsively based upon her excitement and her ability to be influenced by outside sources.
Morgan blames the guru on television for the mistake and as a result, doesn?t recognize her own mistake. This is an even bigger mistake and as a result there will always be another analyst on the television that she can blame for his bad recommendations. Here is the key principle: When people don?t recognize their mistakes, they are doomed to repeat them until they recognize them.

Morgan subscribes to several newsletters. She reads each of them and then picks several stocks to buy. She spends $20,000 on these stocks and they all sit in her portfolio and slowly go down. After a year, she is down $2000. And Morgan has missed many good trading opportunities because her account has these losers.
Morgan now cancels all of her newsletters, thinking that none of them are any good because she didn?t make money. But one of them had excellent returns if she?d taken all of the recommendations. However, she only decided to take certain recommendations?the ones that excited her. So then she thought it was the newsletter editor?s fault that she lost money.

Notice all the mistakes she made here.

She only picked stocks because of excitement rather than treating each newsletter as a system and taking every trade.
She blamed the newsletters for the mistake.
She held stocks that were doing nothing, missing many opportunities to buy better stocks because her account was fully invested.
And, she didn?t recognize any of her mistakes, so she can easily repeat them (and likely will).
And here is another common mistake that I see all the time.

Morgan?s system produces eight losses in a row, which is quite common even in a system that makes money 50% of the time. However, Morgan becomes afraid and stops taking trades. When she stops trading, she misses a 25R winner.
Later, Morgan starts to study the market again and she notices the big winner she missed. Her reaction is to say, ?Oh, I?m a stupid idiot. My system signaled that trade, why didn?t I take it?? So Morgan is now getting into self-blame and she?s again missing her key mistake. When you recognize your mistakes, you can take the steps that are necessary to correct them. Calling yourself ?a stupid idiot? does nothing to correct the mistake.

I could go on about the types of mistakes that people make. Perhaps you have recognized yourself in some of the examples. The main point is that people make lots of mistakes, which prevent them from doing well and getting great results from good systems. And this is not just the average trader. We are talking about many professional traders as well.

The Solution: One of the 10 Tasks of Trading

I?ve been modeling successful traders over the last 25 years. And out of that research, I?ve developed the 10 Tasks of Trading, which is a part of the Peak Performance Course. Most of those tasks will help you with correcting mistakes, but one of them in particular, the daily debriefing, is designed to help you fix mistakes.

The daily debriefing requires about five minutes at the end of the trading day. Think about what happened during the day and look at your written trading rules first. Also remember that if you don?t have such rules, then you are not ready to trade and everything you do might be considered a mistake.

The next step is to ask yourself one simple question, ?Did I follow my rules?? If the answer is yes, then simply pat yourself on the back and go home (or if you are home do something else). You are done. And if you lost money and followed your rules, then you might pat yourself on the back twice.

But what if you lost money by not following your rules? What you now do is simply make sure that you don?t do it again. This requires looking for the conditions that produced the mistake, figuring out some solution to make sure you don?t repeat the mistake, and then mentally rehearsing that behavior until it becomes second nature to you.

Repeating the same mistake over and over again is what I call self-sabotage and that?s an entirely different issue. But your job as a disciplined trader is to make sure that you continually correct each mistake so that you NEVER repeat it.

So let?s go over the rehearsal process. What you need to do is discover the conditions that lead to the mistake. Next, you want to anticipate how those conditions might occur again. For example, let?s say the mistake is that you listened to some investment advice on television. How can you prevent that from happening again?

First, the conditions that lead to the mistake were the following:

Watching the financial channel during the day.
Not controlling your mental state so that you were excited by the financial advice you heard.
Preventing the mistake might simply amount to avoiding both of those conditions. First, you could resolve not to watch television while you are trading or at least turn off the sound. Second, think about making a checklist that must be filled in before you purchase anything. The checklist will consist of your buying criteria, which will probably not be met by some guru?s recommendation on the television. And your last resolution is to never again take a trade without filling in the checklist and making sure that all your criteria are met.

Your next step is to rehearse your solution. This makes your actions automatic so that you don?t have to think about it. For example, you could imagine yourself filling out numerous checklists in your mind. You could imagine yourself turning off the television or hearing the words ?STOP? very loudly in your mind if you reach to turn on the television during the day. You must do each of these things a number of times in your head until both of them become automatic for you.

Do a regular daily debriefing and pretty soon you?ll find that your number of mistakes drops dramatically. My guess is that you?ll eliminate most of your mistakes within a few months. But if you stop your daily debriefing, you may find that your mistakes again start to occur. But that?s another example of self-sabotage and that?s another story

EVIL WALL STREET EXPORTS

2008-10-29T12:00:00.000-04:00

Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt

Oct. 27 (Bloomberg) -- Tom Bosh lowered the telephone receiver into its cradle, making a decision on the way down. ``We're not buying any more,'' he told his traders at Bank of New York Co. ``Nothing.''

It was May 2007, and Bosh, who managed $25 billion from the bank's 13th-floor trading room above Times Square, had just hung up on Ralph Cioffi at Bear Stearns Cos. a dozen blocks away. Bosh had invested $50 million in notes from an issuer Cioffi controlled, and he was ready to pull the plug.

``I had a bad feeling,'' Bosh, 45, recalled. ``Cioffi was just bulldogging everyone. He was saying, `These assets are good, the collateral is paying down, and I know more than you.' That type of attitude.''

Bosh's premonition, a month before two of Cioffi's funds blew up, struck a death knell for structured finance, the system Wall Street banks devised to fuel more than two decades of unprecedented borrowing. The system allowed financial companies to lend beyond their capacity and outside the reach of regulators -- until it crashed this year.

While the collapse was most visible in the stock markets, the cause was the loss of confidence in the world's biggest bond market, structured finance. So far, it has led to the worst financial crisis since the Great Depression, the disappearance or takeover of more than a dozen banks, including three storied Wall Street firms, and almost $3 trillion in government expenditures and guarantees to contain the contagion.

Biggest U.S. Export

The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That's almost twice last year's U.S. gross domestic product of $13.8 trillion.

The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.

``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''

Eager Adopters

European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.

Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country's financial system into a hedge fund. All three banks have been nationalized by the government, leading Prime Minister Geir Haarde to advise citizens to switch from finance to fishing.

In Germany, one bank, Landesbank Sachsen Girozentrale, bought $26 billion worth of subprime-backed investments, putting the state of Saxony on the hook for $4.1 billion.

In Japan, Mizuho Financial Group Inc., the nation's third- largest bank, acquired an entire structured-finance team, which proceeded to lose $6 billion issuing mortgage-backed securities.

Shadow Banking

The damage reaches all the way to Australia, where the town council of Wingecarribee, a municipality outside Sydney with a population of 42,000, bought $20 million of securities from Lehman Brothers Holdings Inc. Now, Lehman is in bankruptcy, the town council is in court and the securities are worth about 15 cents on the dollar.

Securitization is a shadow banking system that funds most of the world's credit cards, car purchases, leveraged buyouts and, for a while, subprime mortgages. The system, which pools loans and slices up the risk of default, made borrowing cheaper for everyone, creating a debt culture that put credit cards in wallets from Seoul to Sao Paolo and enabled people to buy luxury cars and homes. It also pumped out record profits for banks, accounting for as much as one-fifth of their revenue over the last decade.

Beginning about three years ago, investment banks revved the system's engine to boost earnings. They raised revenue by funding more subprime mortgages and cut costs by relying increasingly on the $4.2 trillion sitting in U.S. money-market funds. As it turned out, those decisions would prove fatal.

`Powerful Technology'

``It's a powerful technology that has been driven beyond the speed limit,'' said Juan Ocampo, a former consultant at New York-based advisory firm McKinsey %26 Co. who wrote a 1988 book popularizing structured finance. ``For the last five years, instead of going 65 mph, they've been gunning it to 140 mph, 150 mph.''

Before the invention of securitization, banks loaned money, received payments and profited from the difference between what the borrower paid and the bank's funding cost.

During the mid-1980s, mortgage-bond traders at Salomon Brothers devised a method of lending without using capital, a technique at the heart of securitization. It works by taking anything that has regular payments -- mortgages, car loans, aircraft leases, music royalties -- and channeling the money to a trust that pays bondholders principal and interest.

Off-Balance-Sheet

The word ``securitization'' implies safety. Investors with less appetite for risk buy higher-rated securities and get paid first at lower interest rates. Those with a bigger appetite get paid later and receive more interest.

Securitization's biggest innovation was the use of off-balance-sheet accounting. If a bank couldn't sell a bond or didn't want to, the asset could be sold to a trust within a so-called special-purpose entity, incorporated in a place such as the Cayman Islands or Dublin, and shifted off the books. Lending expanded, and banks still booked profits.

With this new technology, a bank could originate $100 million in loans, sell off some to investors, transfer the rest to a special-purpose entity and not have to hold any capital. The profit could be as much as 1.25 percentage points of the amount loaned, or $1.25 million for every $100 million issued.

``The banks could turn a low return-on-equity business into one that doesn't use any equity, which was the motivation for this,'' said Brad Hintz, a Sanford C. Bernstein %26 Co. analyst and former chief financial officer at Lehman. ``It becomes almost like a fee business because it requires no capital.''

`Capture the Prize'

Like most new products, securitization found a market at home before going abroad. Bankers at Salomon and First Boston Inc. raced from bank to bank to convince issuers it was the wave of the future.

William Haley remembers a 10 a.m. meeting in 1987 at Imperial Thrift %26 Loan Association in Glendale, California. As Haley, at the time a 33-year-old Salomon banker, and his team walked into the conference room to make a pitch, the First Boston team was walking out.

``We exchanged some knowing looks and then tried to beat the pants off them,'' said Haley, who now works at RBS Greenwich Capital Markets Inc., a firm specializing in mortgage-backed securities that is owned by Royal Bank of Scotland Group Plc. ``There was a fierce desire to capture the prize.''

First Boston

First Boston, housed in the same New York office tower as McKinsey, was first out of the gate in March 1985 with a $192 million computer-lease securitization for Sperry Corp., a predecessor of Unisys Corp. The bank then oversaw a series of auto-loan securitizations, including a $4 billion issue by General Motors Acceptance Corp. in October 1986, the biggest corporate debt issue at the time.

Haley's project was a $50 million deal for Banc One Corp. called Certificates for Amortizing Revolving Debts, or CARDs. It was the first credit-card securitization and a blueprint for the $358 billion of such securities now outstanding. The transaction also gave the banks a way to securitize their own assets and get them off their balance sheets, which allowed the money to be lent all over again.

The strategy was detailed in Ocampo's 282-page book ``Securitization of Credit: Inside the New Technology of Finance,'' which he co-wrote with McKinsey consultant James Rosenthal. Ocampo, who received an MBA from Harvard after graduating from the Massachusetts Institute of Technology, and Rosenthal, a Harvard Law School graduate, argued that banks could be more profitable if they used securitization.

McKinsey Book

The authors examined six of the first asset-backed transactions and gave readers a step-by-step guide for how to repeat them. They said that banks that didn't embrace the new technology would be at a disadvantage, and they predicted it would become the dominant form of financing.

``The McKinsey book helped with credibility with issuers,'' said Haley. ``It wasn't that easy in the beginning. Conferences now have thousands of people, but I remember once in Beverly Hills, I gave a speech and there were maybe 25 people in the audience. They were furiously taking notes, however.''

The new technology was spread around the world by the people who worked on the First Boston and Salomon teams. Salomon's group was led by Patricia Jehle, who later founded Bear Stearns's asset-backed unit. Another member, Michael Hutchins, started the first team at a European bank when he went to Zurich-based UBS AG in 1996. A third, Michael Normile, moved to Merrill Lynch %26 Co., where he ran its securities business, then switched to London-based HSBC Holdings Plc in 2004. Haley built similar teams at Lehman, Chase Manhattan Bank and Amsterdam-based ABN Amro Bank NV.

Hard Sell

First Boston's team included Walid Chammah, 54, who went on to head debt and equity capital markets at Morgan Stanley and is now co-president of that firm. Joseph Donovan, the banker responsible for the GMAC relationship, went to Smith Barney in 1995, to Prudential Securities in 1998 and two years later took over the asset-backed group at Credit Suisse First Boston after Zurich-based Credit Suisse bought First Boston.

Donovan remembers traveling to Europe for First Boston in the early 1990s, trying to convince Volkswagen AG in Wolfsburg, Germany, and Renault SA outside Paris of the benefits of securitization. It was a hard sell. Europeans, he said, didn't take out auto loans.

``We tried over and over,'' Donovan recalled. ``We were trying to get more issuers, and there weren't any.''

`50-Year Pedigree'

By the time Donovan went to work for Credit Suisse in 2000, European attitudes had changed. Home-mortgage securitizations were especially appealing, he said, because European banks didn't need a ``50-year pedigree to compete.''

``You don't need a whole equity-research department and relationships with CEOs and CFOs,'' Donovan said. ``You basically needed good computers and distribution. You can always buy a Fannie, Freddie or Ginnie Mae pool. You just go online and buy it. You can't buy a Ford Motor Credit deal, because you have to know people.''

CSFB went from third in underwriting structured finance in 2000, behind Lehman and Salomon Smith Barney, to first in 2001, when it issued $96.3 billion in securities. Its market share increased 50 percent to 12.7 percent. The bank fell to fourth place in 2005, although its volume soared to $144.5 billion.

Exporting Debt

As securitization caught on, borrowing increased. U.S. consumer debt tripled in the two decades after 1988 to $2.6 trillion, according to the Federal Reserve. Foreign banks used the new technology to expand lending, seeking borrowers on their home turf.

``One of the things the United States exported overseas was a debt culture,'' Haley said.

While consumers were snapping up credit cards, Nicholas Sossidis and Stephen Partridge-Hicks at Citibank in London were figuring out a way to sell the new bonds. Their solution: Alpha Finance Corp., the first off-balance-sheet structured investment vehicle, or SIV.

Alpha was created in 1988 as a way for Citibank, and later Citigroup Inc., to vertically integrate its business like an oil company. The raw material was found in a loan, refined into a security, then sold to a SIV at a profit.

Citigroup, formed in a merger of Citicorp and Travelers Group Inc., which owned asset-backed pioneer Salomon, also got a new product to sell: capital notes that boast returns of more than 20 percent a year. Owners of these notes receive all the excess return when borrowers pay their bills on time, though they are the last to be paid when times get hard.

Citi SIVs

In the beginning, SIVs were small and cautious. Alpha was capitalized with $100 million of equity that supported $500 million of commercial paper and medium-term notes. The SIV could hold only debt rated A- or higher and didn't take any currency or interest-rate risk, according to a 1993 Fitch Ratings report.

Alpha was followed by a slew of SIVs with names such as Beta Corp. and Five Finance. By 2007, Citigroup's SIVs had $90 billion of assets, equal to the stock market value of PepsiCo Inc., making up about one-fourth of the entire SIV industry.

In 2003, the bank was sued by creditors of Enron Corp. for its role in setting up entities that enabled the Houston-based company to move assets off the balance sheet for Chief Executive Officer Jeffrey Skilling. Citigroup paid $1.66 billion in March to settle the lawsuit. Skilling, a former McKinsey consultant, was convicted of accounting fraud and is serving a 24-year prison sentence.

Mismatched Funding

Starting around 2005, securitization began to rely more on short-term money-market funds for financing. This was especially true for securities made by pooling other bonds, known as collateralized debt obligations, or CDOs. Investors were loath to buy long-term debt of issuers that didn't have a track record, so new issuers sold asset-backed commercial paper that matured in less than a year. While money markets are the cheapest way to finance, they can also be the most dangerous for borrowers because they can mature as soon as the next day.

``What happened in 2005 was that because of subprime and some other changes, commercial paper and asset-backed securities offered a bigger spread than anything that had ever been in the market before,'' said Deborah Cunningham, chief investment officer of Federated Investors in Pittsburgh, who oversees $235 billion in commercial paper. ``It was hundreds of basis points, as opposed to 10 or 20 basis points before.''

SIVs, banks and CDOs sold trillions of dollars of asset- backed commercial paper between 2005 and 2007 in maturities ranging from nine months to overnight. In the U.S., the amount outstanding marched higher almost every week beginning in April 2005, peaking at $1.2 trillion for the week ending Aug. 8, 2007.

`Huge Appetite'

Once money-market funds began to be tapped for financing, Ocampo said, ``it created a huge appetite for high-yield assets, far more than could be originated on a sound basis.''

To accommodate the demand, banks funded more subprime mortgages, with an average life of seven years, replacing car loans with an average life of three years and credit-card bonds paid off within 18 months.

Among conservative lenders, that rang an alarm: Bankers are taught to avoid such mismatched funding, in which a lender has to pay back money before the borrower has to pay the principal.

``Most of the terrible things happening now are because of the presence of money-market assets, taking what used to be long-term funding and making it short-term,'' Bruce Bent, 71, who started the first money-market fund in 1970, said in an interview in July.

Reserve Funds

Bent, chairman of New York-based Reserve Funds, said he didn't buy any asset-backed commercial paper until 2007, when the market froze in the wake of the collapse of the Bear Stearns hedge funds. That's when his Reserve Primary Fund began buying castoffs of asset-backed commercial paper at cut-rate prices from other funds.

Yet asset-backed securities weren't Bent's undoing. His fund also owned $785 million in Lehman debt, bought before the firm filed for bankruptcy Sept. 15. In the two days following the bankruptcy, Reserve clients asked to pull about $40 billion from the $62.5 billion fund, and its net asset value fell to 97 cents. It was the first time that a money fund ``broke the buck,'' or fell below $1, in 14 years. The fund is now being liquidated, and Bent hasn't given an interview since.

Reserve Primary Fund's implosion, and the subsequent seizing up of two Commonfund portfolios used by universities and endowments to hold cash, triggered a panic in U.S. money markets, cutting off this form of credit to industrial companies and banks. No one could be sure whether the banks held securitizations that had dropped in value, making them insolvent. That set off a series of bank takeovers and bailouts around the world, including a $64 billion capital injection by the U.K. government into that nation's financial institutions and 400 billion euros in loan guarantees pledged by Germany.

`Absolute Disaster'

``We've created an absolute disaster,'' said Nouriel Roubini, a New York University professor of economics, who predicted the failure of investment banks in a paper he wrote in February titled ``Twelve Steps to Financial Disaster.'' ``The reputation of the United States as a financial center and a leader has been tarnished significantly.''

Also tarnished, if not blackened, is the securitization business itself. Sales of European asset-backed securities, including bonds for car loans and credit cards, fell by 40 percent to 12.7 billion euros in the second quarter, and CDO sales fell by two-thirds to 10 billion euros. In the U.S., mortgage bonds issued by entities not affiliated with the government plummeted to $10.8 billion in the first half of the year, one-twentieth of the $241 billion sold in the same period in 2007.

Cioffi, Bosh

The authors of the 1988 McKinsey handbook on securitization have moved on. Rosenthal, who declined to be interviewed, became a managing director at Lehman and is now in charge of information technology at Morgan Stanley. Ocampo received a patent for risk-controlled investing and founded an institutional fund-management firm, Trajectory Asset Management. The firm doesn't have any structured-finance obligations.

Bear Stearns's Cioffi, 52, was indicted on charges of misleading investors by assuring them that his hedge funds were healthy when he knew they weren't. Cioffi, who now works out of his home in Tenafly, New Jersey, has pleaded not guilty. He declined to comment.

The Bank of New York's Bosh lost his job when his company was merged with Mellon Corp. in June 2007. He's still looking for work.

``You try to do the right thing,'' Bosh said in an interview this month. ``And this is what happens.''

BUY SIGNALS

2008-10-19T09:47:00.002-04:00

REVERSAL FROM SUPPORT

CONTINUATION FROM RESISTANCE AND REVERSAL FROM SUPPORT

RECAP
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BEARS BEARS BEARS

2008-10-18T18:59:00.000-04:00

WAVES

2008-10-17T05:45:00.001-04:00

http://screencast.com/t/7Ft2cnyZYB

RECESSION

2008-10-16T20:25:00.001-04:00

http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Predicts%20a%20Recession%20That%20May%20Last%2024%20Months&clipSRC=mms://media2.bloomberg.com/cache/vDHgWim6Nh8U.asf

PLOPINO: CRASHES

2008-10-14T20:32:00.001-04:00

PLOPINO: CRASHES

Stock Market Video 10/14/08 from brian shannon on Vimeo.

CONFIRMATION OF REVERSAL

2008-10-13T20:49:00.000-04:00

REVERSAL

2008-10-10T20:45:00.000-04:00

CRASH

2008-10-10T07:18:00.001-04:00

Crash!?

Human nature is a wonderful unfolding drama. In 1929, the time from the last chance to get out to the crash was 55 days. In 1987, 55 days was the Saturday before Black Monday. Now in 2008, the last top was Aug 11 and the first crash was last Monday, Oct 6 - 55 days to the Sunday before. Does it just take about that long for the point of recognition to sink in? Amazing that each time the next trading day after 55 days would be the crash (which can unfold over several days, as in 1929, and 2008).

Who woulda thunk we would relive 1987? I remember being in London, and hearing that the US market was down 200 odd pints, then was coming back; and at the end was down "5 0 8". We thought he meant 5.08. and it had come back. We found out later he meant the incomprehensible drop of 500 points off Dow2200. This would be a 2000 point drop tomorrow. It now seems thinkable. Could it happen?

Look at this chart. Wanna catch the bottom tomorrow? Ever caught a falling knife?

Neely's service has vigorously kept us posted on his thinking, and he has a cell phone alert tomorrow if need be. He put put a crash warning tonight. Obligatory disclaimers: crashes are rare events, impossible to predict, blah blah. The STU merely stated that "third wave declines could go anywhere." Let me make this simple: we already have crashed. Question is how low will it go? Let's explore stopping points below the fold.

Some optimistics on the Street were floating "Dow 8500" as a support level. When the market rose from Mar03 to Jan04, it didn't stop much anywhere, including at 8500, and never got back to that level until now. Hard to see why this is anything but wishful thinking. We hover at that level, albeit futures have already gone below it in the aftermarket (Dow8344). So I guess we shall test 8500 in the first few minutes of trading. Swooosh! On to the next level.

The most logical support level is the triple bottom on Jul02 / Oct02 / Mar03 around DOW7400 and SP777. Intraday, the Dow got down close to 7100. So a range of 7100-7400, or SP 777-800, really is a support level. And a very important one. Prechter first opined that the ~16 year period of correction from 1998/2000 to 2014/2017 would break as a triangle. Neely also shares this view, and I too have been expecting a triangle. The bottom of that triangle would be this 7200 +/- level, and we would expect to hit it three times: in 2002, 2010, and in the final downtick in 2014-17.

If we break it significantly, the triangle is out. Neely thinks we *may* breach it temporarily by as far down as SP650 (an irrational exuberance to the downside) before continuing on the triangle. I had thought we would end above Dow7200, closer to 9500; have a huge Election Rally into May 2009 that could run up as far as SP1325 and Dow14K before the Summer of Disillusionment sets in, and then crumble back down to Dow7200 in 2010. This would constitute wave C of the 14-year ABCDE triangle, and would break as a flat with A = C. While that specific scenario is now out, if we hold above Dow7200, the Election Rally and subsequent end of C in 2010 is still a probable scenario.

But if we break through, the pattern shifts off the triangle to a flat: a three-wave down into Mar03, followed by a three-wave up to Oct07 (it being ok for a B wave of a flat to go to new highs), and now a five-way down to complete the correction. As a flat, C often = A, but we have already had a deeper and faster C than the A. Next most likely is C = 1.6 x A. The A wave fell 4500 Dow points and 750 SP points, not even; the SP had more tech stocks. So perhaps the C wave will even the two indicies out, with the Dow falling 1.6x A and the SP 1x A, pointing to Dow falling 7200 pts (ending at around Dow7200) and the SP dropping 750 pts (ending around 800). Ok, again a confluence around the expected level, not lower.

If we go a lot lower, both the flat and the trinagle would fail, and the pattern would look like a zigzag. Let us hope not! We had a double zig zag from 1966-1982, and we should not have one again under the rule of alternation, at least not if we we count the 66-82 period as 50W2 and our current period as 50W4. We would still have the audacity in the middle of fear and despair to expect a 50W5 robust bull market ahead after the end of 50W4 in 2014-2017. But if this breaks as a zig zag, then we have to reconsider whether Prechter has been right all along to say this is not a mere 14 year correction before another bull run, but a much deeper correction off the whole rise from 1789. Whew! End of the American Century and all that. Let's hope not.

For a variety of reason I expect us to bottom around Dow7200 / SP800. It might be tomorrow, after an historic drop of over 1000 Dow pts, but more likely it is a drama that unfolds over a week or so, touching the eventual bottom several times. Zoran Gayer used to say that in these circumstances expect a triple bottom. And that is what happened in 1987, with the first two happening quickly and the third over the next month or so. Also happened in 2002, with the bottom stretching over 9 months.

At the first bottom expect to see (a) huge volume, at least 3 Bn shares traded that day; (b) a churning just at the bottom, as shares rotate from bears to bulls with no apparent motion; and finally (c) a very sharp and fairly high rally. Much like 1987. And Oct02.

If we crush through Dow7200/SP777, no telling where this stops. On the way up, we had a number of pauses, most notably at Dow3600, where Prechter first thought we would peak (way back in the '80s); Dow4000, where the dot-com fever first broke out in 1995; Dow 5440; and Dow6000 / SP650, numbers bantied about due to Fibonacci relationships.

These are only some of Prechter's many way stations on the way up, but they end around Dow6k, as he stopped calling the top, after having lost credibility for too many Wolf! Wolf! calls. I dare say his credibility is back.

OPTIONS EXPIRATION WEEK

2008-06-16T22:09:00.001-04:00

1) Generally after a large move during op x week which is Tues.-Fri. (Mon. Is not factored in) which is usually on a Wed. The market tends to flatten out after. There is a ton of churning going on after this large move because of imbedded manipulation. This is not planned it is just the market place readjusting for ex. If the move was a rally then the longs are taking profits and shorts are covering. There will also be a contraction of volatility the following days.

2) There tends to be a continuation of the trend following that large move. Use pullbacks for buying opportunities and rallies to sell depending on the direction of the move. Everything is not done so you will see a exaggeration of the trend be it shorts who have not covered yet and/or new money coming in if the large move was a rally. The opposite is true if the large move was a sell off.

3) Wed-Fri of op x week historically are weighted towards the buy side up to 70% of the time. There tends to be a lot of buy pressure because during the course of the month what sets up the most is sell programs. So for the large institutions and funds have to close out those positions so buy programs set up the most Wed-Fri. It happens to be one of the most bullish times of the month. Most professional traders want to be flat their cash held indexes because they do not want to have exposure to an opening bullish print Friday morning.

4)You want to try to be out of your front month options by the close of business Wed. If you were expecting a certain move and it has not happened yet it is best to be out of that position unless you have a specific strategy you are employing specifically for those last 2 days of trading the front month options. It is best not to take a chance on delta or gamma deterioration.

5) the Monday following Friday expiration is one of the most liquid trading days of the cycle. It is a day that everybody is at work. You can put positions on wrapped relatively close to theoretical value. It is one of the most intense days to trade because most professionals traders are flattening out and they are not looking for as much as an edge.

6) Stocks that are reporting during op x week do not lie. Stocks that are strong stay strong and stocks that are weak stay weak. It has to do with the smart money. Stocks do not want to disappoint during this week so if they are going to miss they will have pre-announced most of the time. (Which make me think of last month and GOOG everybody was expecting them to miss because of their comscore numbers and we all know what happened.)

7) April expirations historically tend to be bullish. Professional traders are very nervous about going into April expirations short.

8) Be strike price aware during this week. Options will tend to get pinned a price that hurts the most people.

9) TOS believes traders have a small edge during this week to put on new positions for next month Wed-Fri of op x week. Because other then the upcoming Monday the next week's trading is very competitive pricing wise. During op x week hedge funds, liquidity providers, those that take the order flow are more focused on their near term positions and they may be more likely to facilitate trades in the next month at slightly better prices then you will get next week.

10 on op x week there is a reason to watch the relationship between the different broad based indices. Rarely will you have divergence. If you are not watching the futures markets you should be because they push the market.

CF DRYS POT

2008-05-05T20:44:00.006-04:00

This can go either up...or down.

Could be nice opportunity to go long if pullbacks here.

Got stopped out on my May 180 puts. Lesson learned: set $.50 stop once get 50% profit.

GOLD

2008-04-24T09:32:00.002-04:00

Bad Trader v's Successful Trader

2008-04-23T11:51:00.000-04:00

BELIEFS

Bad Trader:

Money is important
It's bad to loose in the markets
It a battle, war, sea or animal and serious
No need to mentally rehearse each trade
I've lost before I start

Most people approach trading to make money and that is the primary reason they lose. Because money is so important, they have trouble taking losses and letting profits run.

Successful Trader:

Money is not important
it's ok to loose in the markets
Trading is just a game
Mentally rehearsing each trade is important 4 success
I've won before I start

In contrast, when you think trading is a game and play by certain rules, then it becomes easier to follow the rule of cut losses and run profits. In addition, because of mental rehearsal and extensive planning, top traders have already gone through all the trail and error in their mind before they begin. As a result, they know they are going to win in the long run, and it makes little set backs easier to deal with.

EMOTIONAL CONTROL

Bad Trader: No emotional control
Successful Trader: Strong emotional control

DISCIPLINE

Bad Trader: Lack of discipline
Successful Trader: Strong discipline

PATIENCE

Bad Trader: Lack of patience
Successful Trader: Extremely patient

RISK ATTITUDE

Bad Trader: Run losses Cut profits
Successful Trader: Cut Losses Run Profits

FAILURE ATTITUDE

Bad Trader: You can fail
Successful Trader: No such thing, just leant something
TRADING EMOTION

Bad Trader: Fear and greed
Successful Trader: Calm / confident/ detached from trading/ still
STRESS ATTITUDE

Bad Trader: Because failure exist they burn energy trading on stress = follows crowd mentality & irrational choices
Successful Trader: No such thing as failure own mind rational choices

LOOSING ATTITUDE

Bad Trader: Loosing attitude, anxious about losses, blames others for mistakes so has to get them to change Must win now
Successful Trader: Calm about losses, blames self for mistakes so change behaviour now, can lose now as will win in the future

TRADING MENTAL STATE

Bad Trader: Confused, scared, fear and greed trading state
Successful Trader: Strong peak appropriate trading state

MARKET KNOWLEDGE

Bad Trader: Weak knowledge Weak understanding of how it works
Successful Trader: Strong knowledge Strong understanding of how it works

MODEL OF TRADING

Bad Trader: Not tested model
Successful Trader: Test their model before applying

COMMITMENT TO SUCCESS

Bad Trader: Not committed to being successful
Successful Trader: Committed to being successful

COMMITMENT TO TRADING

Bad Trader: Not committed to trading
Successful Trader: Committed to trading

EXCITEMENT

Bad Trader: Experiences excitement when trades go well
Successful Trader: No excitement from trading, excitement from other areas of life

PERSONAL CONFLICTS

Bad Trader: Many personal internal conflicts with trading
Successful Trader: No personal conflicts with trading. Identities aligned.

DECISIONS

Bad Trader: Bad decisions - long and complicated When they can't decide what to do they follow the crowd
Successful Trader: Good decision - short and quick Calm and decisive

PERSONAL ENERGY

Bad Trader: Tired
Successful Trader: Energised

?????

2008-04-15T20:55:00.000-04:00

Have you ever wondered why some traders make money easily, while others consistently make money only to give it back again or can not gain any form or consistency? Is there something that successful traders and investors do that makes them consistently successful? Is the difference found in their trading systems, technical or fundamental approaches, intelligence, skills, timing, luck, or their choice? The answers are to be found in none of these things.

All traders and investors have a blueprint ingrained in their subconscious minds, and it is this blueprint, more than anything, that will determine your trading and investing results. Your financial, trading and investing blueprint is the secret of trading success. 90% of trading success is how you think.

It is well documented, and many studies have shown that regardless of the size of the winnings, 80% of lottery winners lose all their winning and are actual worse off two years later. However, it has also been shown that many self made millionaires who lose all their money will usually regain it back within a few years. Why does this predictable pattern happen?

Two people could grow up in the same neighbourhood, go to the same school, have had the exact same education and yet this is were their similarities end. They could sit side by side at the same trading and investing seminar, learn the same information, but yet one could become wealthy from the information and the other could see their account wiped out. Why is this?

You can know everything about trading and investing, but if your blueprint is not set for trading and investing success, nothing you learn, nothing you know, nothing you do will make any difference in the long run - and if somehow you do make money trading and investing, you will most likely 'donate' it back to the market! You can have the greatest trading methodology, techniques, strategy, system, etc, but if you are not thinking correctly, the by product of a faulty blueprint will be your account will be wiped out. Or, you will give up and think it's impossible to win.

Everything you where told, everything you unconsciously modelled and saw people do, and your emotional experiences all regarding money, trading and investing are pre-determining the results you will experience for the rest of your life. We have all been taught and conditioned when it comes to money, trading and investing and this information is stored in your unconscious mind. Less than 4% of traders and investors have supportive money, trading and investing beliefs. By this, I mean, you will see money go from your account to those who have a blueprint, which enables them to be a successful trader and investor.

You could easily spend a fortune on studying trading and investing, however, if you don't learn to reprogram your thoughts, it will all be for nothing. Unfortunately your current trading and investing blueprint will tend to stay with you for the rest of your life.

By now, you're probably wondering what is your blueprint set for. Is your blueprint set for success or failure? If you want to know what your money, trading and investing blueprint is right now, look at the results you are producing.

What is your account like right now? What is the shape of your equity curve? Are you consistently making or losing money? What is your net worth? Are you experiencing consistent or inconsistent results with your trading and investments? Is making money hard or easy for you? Do you stick with one strategy, a few, or change around all the time? Do you manage or mismanage your money and account? Do you cut your loses and let your profits run, or do you do the opposite? Are you disciplined in your trading? Do you get emotional when trading?

WHERE YOU GAINED YOUR TRADING AND INVESTING BLUEPRINT AND THOUGHTS

As adults, we have all been taught and conditioned when it comes to money, trading and investing. Most of this took place during your childhood and teenage years.

These early influences shaped who you are today. If they were not the right influences, and are left unchanged, they will lead to self defeat and failing to financially succeed in trading and investing.
These influences were processed through 3 of our 5 senses. Things you heard, saw, and felt in relationship to money, trading and investing.

Everything you were told, everything you unconsciously modelled and saw people do, and your emotional experiences all regarding money, trading and investing are pre-determining the results you will experience for the rest of your life.

How The Past Things You Heard Accurately Predict Your Trading And Investing Results For The Rest Of Your Life

All the statements you heard or formed about money, trading and investing remain in your unconscious mind, and they are controlling your results. These statements once accepted by you will go into your unconscious mind, and form a belief, upon which you are automatically acting upon, and no logic will stop you doing otherwise. For example, if you believe money is the root of all evil or rich people are evil, and if you believe you don't want to be evil, then you will unconsciously be guided to get rid of the money you make, or fail at trading and investing. You may have been told to follow your rules, and for example, you may have a rule of getting in when the price is at a 52 week new high. However, if you were told and as a result you now believe that professionals short at 52 week new highs, your belief will stop you from entering the trade. When it comes to choosing between logic and things you heard that created your programming, your behaviour will always be guided by your unconscious mind. Your emotions will win nearly every time. If you were told, or you unconsciously formed the wrong beliefs about trading and investing, you will struggle to be successful. Most people have no idea what their beliefs are. You need a way to change them for good.

How The Past Behaviours You Modelled Accurately Predict Your Trading And Investing Results For The Rest Of Your Life

Whose behaviours did you learn when it comes to money, trading and investing? Unfortunately most people learn trading and investing in seminars or from books from people who make their money from teaching about trading and investing, rather than people that make/made their money in the markets; Successful professional traders and investors. If you leant the behavioural traits from the wrong person, again this will be imprinted on your blueprint. As children we learnt everything from modelling experts. This is exactly how you learnt to walk. You copied people who were doing it successfully, not from people who wrote books about it, or told you about it. You copied what you saw working. If you copied/modelled the wrong behaviours, you will struggle.

How Your Past Emotional Experiences Accurately Predict Your Trading And Investing Results For The Rest Of Your Life

The emotional meaning you associate with money will drive your feelings and behaviour. If you feel or attach nothing but pain or negative feelings with losing money, then taking a loss is hard to do. If you have a built in desire to be right, because it feels wrong not being right, again you will struggle with trading and investing. If you have had nothing but negative emotional experiences with money, trading and investing, again you will struggle with money, trading and investing for the rest of your life, unless you learn how to change this. You need a way to unlearn the wrong emotional meanings that you have unconsciously installed.

Change your programming and you change your results and destiny.

BUY SIGNAL

2008-03-25T07:05:00.002-04:00

Check at 6:44 for this buy signal. huge volume from support/resistance...followed by a 2 or 3 low volume pullback...big volume taking out the first candle.

PAUL VOLKER SPEAKS

2008-03-23T09:43:00.000-04:00

MARKET SUMMARY

2008-03-22T05:19:00.000-04:00

A BEARISH PERSPECTIVE

2008-03-21T09:05:00.004-04:00

Going into Monday, there are a few stocks here that look to be ice hole failures at the 50sma daily. Will see if they begin a downturn. POT, RIG, MON, MOS

TURNING POINT

2008-03-18T18:58:00.001-04:00

TEchnical Analysis Stock Market Review 3/18/08 from brian shannon on Vimeo.
When BSC dropped to $2 yesterday, it essentially tanked the market. Today, GS and LEH gave good news prior to the open. Later in the day, the Feds cut the rate 75 basis points. Market could be off and running in the short term.

CHAILKIN BOTTOM

2008-03-16T09:17:00.004-04:00

1. Make a First low - 1272.66
2. Bounce 1% or more over the next two days
3. Come back down and close below the First low on the third/fourth/or fifth day
4. Make an hourly close above the First low (this generates a buy signal) 1272.66
The reason this bottom is so effective at leading to a good rally is that the lower low shakes out all but the strongest hands. It will take out stops. The only guys left are strong hands; they aren't sellers at low prices.

1. Make a First low - 155.23 on 3/10
2. Bounce 1% or more over the next two days
3. Come back down and close below the First low on the third/fourth/or fifth day
4. Make an hourly close above the First low (this generates a buy signal)- 155.23

PLACES TO CHECK OUT

2008-03-14T05:35:00.006-04:00

Here are graphs of VWAP. Also, a few sites to checkout from Dragaon.

Top 1% Stocks by Signal Direction for Mar 13
http://www2.barchart.com/sigdir.asp

Top 1% Stocks by Signal Strength for Mar 13
http://www2.barchart.com/sigstr.asp

Barchart.com - Signals - Top 100 Stocks
http://www2.barchart.com/sigtop.asp

PERFORMANCE ANXIETY

2008-03-13T21:41:00.002-04:00

There is a tendency for traders to feel baldly about under performing the market averages on a daily or weekly basis, but success as a trader does not come from such short term measurements or comparisons. We all have our cycles of under or out performance, but over time, the true measurement of success in trading is being consistently profitable regardless of how the overall market is performing. At the end of each trading day you shouldn't focus solely on your P/L, instead you should focus on your thought process that day and how well you executed your plan. If you consistently execute your trades according to plan and still lose money then you may need to reevaluate your approach. While there is definitely a cyclical rhythm to the market, no strategy will always work. You need to constantly and objectively review what is working so you can make necessary adjustments to your plan.

You should always ask yourself whether your results are attributable to your ability to see the markets clearly and execute your plan with discipline, or if the market is making it easy to book profitable trades. There are times when the market makes a trader's job much easier and huge profits can be made in short periods of time, unfortunately those times do not last. The trick is to hold onto those profits when the market becomes more difficult. Many traders experience large losses after a string of profitable trades because they succumb to the feeling "that the losses aren't real, they are just giving back profits". This dangerous thinking is borne from complacency as a result of a feeling of infallibility which leaves the trader vulnerable to large losses. You always have to take all losses seriously and minimize them at the first chance without hesitation, doing otherwise is how amateurs trade. You know what an amateur trader is? Amateurs are traders who make big money in a bull market, give it all back when the trend ends and then blames their losses on the market. Professionals listen objectively to the message of the markets and adapt quickly to changing market conditions.

(Excerpt from Brian Shannon)
**Don't trade during the first hour. A gap down can be filled or vice versa.
**Look at daily to set stops. Look intraday to enter positions.

PERFORMANCE ANXIETY

2008-03-13T21:41:00.001-04:00

BIG DAY

2008-03-11T19:18:00.000-04:00

The biggest up day in 5 years.

SP-500

2008-02-24T18:38:00.007-05:00

I agree with this projection. Recent rallies are oversold rallies with really no buyers. This model projects a retest of the Jan lows...with more downside afterwards. The main question is when.

OEX

2008-02-24T12:32:00.004-05:00

PROJECTIONS

GOOG

2008-02-24T10:24:00.004-05:00

GOOG is in a compressing wedge. The top line represents the declining tops while the bottom line is a long term trendline. Which ever way it leaves the wedge, I'm sure the move will be very substantial.

PIVOT POINTS

PROJECTIONS

BIDU

2008-02-24T10:00:00.004-05:00

BIDU is also in a compressing wedge ala GOOG. Both are high flyers that have been grounded this month. Volume is a little better in GOOG...but not by much.

PIVOT POINTS

PROJECTIONS

GS

2008-02-24T09:30:00.002-05:00

Samething...same story...ala GOOG...ala BIDU...however, it just finished testing the lows succesfully. It needs follow-through on Monday.

PIVOT POINTS

PROJECTIONS

WHEN THE BEARS GO AWAY

2008-02-18T18:36:00.000-05:00

TECH ANALYSIS

2008-02-12T07:13:00.001-05:00

Shows the move off a bull flag/20ma along with a head and shoulders move...break down off the neckline/50.

SEVEN RULES

2008-02-09T17:45:00.000-05:00

http://todaytrader.com/7Rules.pdf

TRADING MISTAKE

2008-02-08T07:13:00.000-05:00

Which trading mistake is worse?

a) Taking bad trades

b) Failing to take good trades

Psychologically, these are very different mistakes. Taking bad trades (overtrading) is most often a function of overconfidence, frustration, or sheer impulsivity. It represents a relative absence of control.

Failing to take good trades, on the other hand, can be viewed as an overcontrolled behavior pattern. Anxiety and a lack of confidence are common reasons for not taking trades with an edge.

Many traders cycle between these modes: They become overaggressive, take bad trades, undergo losses, and then become overly risk averse and fail to take good trades. This is a deadly cycle, both emotionally and financially.

So which is worse? Neither: as we can see with those traders that cycle between the two, they're variations of the same trading problem--a loss of rule-governance. When we become emotionally stimulated--whether with anger or anxiety--we are apt to act in flight (don't take the trade) or fight (take any trade) mode. We no longer stay connected to trading rules and sound practices.

Neither mistake need be deadly if it becomes a cue to observe yourself and figure out why you are veering from your rules. Trading mistakes can be opportunities for self-analysis if you're able to catch yourself and enter a reflective mode. That is why I like to take a time out when I'm getting away from my goals and rules. We can't undo mistakes, but we can turn them into learning experiences.

WM

2008-02-07T07:29:00.000-05:00

Entry @ $17.70
Stop @ $17.40
Target = $27

HOTTO SPEAKS

2008-02-05T05:44:00.000-05:00

First I'll repeat my story of March - July 2003.. There's a point : ) I was working on an engineering consulting job in early March, 2003. Details are in past chat logs. So.. I missed the Impulse rally from 3/12/03 to 3/21/03 .. 7 days.. 1100 points. I took that rally to be an Impulse Rally to start a new Intermediate Term rally.. 5 weeks to 13 weeks. But.. it had become Overbought.. so I waited for a PB... maybe to sma50.. about half the rally. We got the PB to sma50.. And OBV held most of the gains of the Impulse rally. I started buying on April 1 or 2.. after Missing the wonderful Impulse rally completely. During the whole month of April, 2003.. the DJIA did Not make highs Over the top of the Impulse rally in March. But.. we (in Hotto Club).. made big gains in SWGC during April.. as small stocks played catch up with the Blue Chips.. as the Blue Chips Consolidated the Impulse rally gains. By July, 2003.. I was up about 140% from April.. I forget exactly.. It's in the old Logs. Again.. That all came After missing the Impulse rally completely. During April May June, 2003.. there were lots of doubters.. thinking it had been just another Bear market Rally. It was not until August.. on the BO.. that I was sure we were in a new Bull Mark et.

Key points...
It's not disastrous to miss out on the Impulse Rally.
If Intermediate Term signals are given... it's possible to make good gains beginning After the Impulse Rally is over.
Same old thing.. When the market gives important Signals.. it often uses up a lot of energy to give the signal.. and next needs to retrace part of the move that produced the signal... Or at least Consolidate for a while.
Friday we got the new ZBT.. first true complete one in over 20 years. ZBT is "Zweig Breadth Thrust" signal. I discussed the Zweig Indicator over the weekend.. T2103 is the ticker on TCNet. I'll go over ZBT more now. Marty Zweig did his research back in the days before PCs could be used to help trading. Zweig did a lot of work on Momentum indicators.. adding to other earlier research by others. The ZBT takes a lot of buying to achieve the buy signal. Zweig's signal needs a surge.. within 10 days to go from Oversold to Overbought.. in the A/D measures. He was not interested in very Short term trading.. but in longer term Trends that would support gains over time. So... the ZBT signal - in my words - Looks for a solid Impulse Rally.. with Breadth support.. that makes it very likely that a LT Rally is under way.. even Longer than My "IT Rally" of 5 weeks to 13 weeks. The ZBT forecasts a higher market .. months ahead. Average gains have been 24.6% in average 11 months.. After the ZBT is given. I'm used to trading in much shorter time frames. My goal has been to discover the start of Intermediate Term Rallies.. 5 weeks to 13 weeks. Then.. often.. I trade 3 day to 5 day swings within that Intermediate Term trend. But.. the ZBT can be helpful to us.. in a high probability Big gain over the next 11 months.

Theoretically, I take the ZBT to be a show of urgent Short Covering.. And Buying by big investors. As discussed in the PR31b discussions and related.. we expect to see the Tigers "Pounce" more than once before the larger trend emerges. The 2003 example I discussed earlier shows how it may evolve. Impulse Rally.. then 5 weeks of sideways Consolidation.. Then the Uptrend emerged. But.. during the Consolidation in the Blue Chips.. the small stocks were playing catch up. T2100 shows what happened.. away from the Blue Chips during April May of 2003. T2100 continued higher during April 2003.. while Blue chips consolidated. T2100 is the A/D line.

I'll go over some cases of the ZBT signal

First some more detail...
Zweig defined the ZBT using a 10 day Exp Average of the ratio.. ( A / (A+D)). Again.. that had to do with few investors having Computers. It's much easier to compute Exp Average by hand.. than Simple MA. In the years since Zweig defined the ZBT.. the PC took over. Other market researchers began using Simple MA on the ratio to create the Zweig Index. Using sma gives different results from Exp Average. So.. if you dig into the topic on the Internet.. be aware of the differences. There are other variations out there. Zweig "Continuation" has been defined - not by Marty Zweig.. but by others. Others have used an 8 day window.. or 12 day or 15 day. So.. be careful in comparing results from various sources.

In May, 2004 there is a Near-ZBT showing. 5/10/04 T2103=31.31... then 11 days later.. 5/25/04 .. T2103=61.62. That was 11 days.. Just outside the Zweig window of 10 days. If you start from 5/11/04 , T2103=40.48.. That gets it down to 10 days up to 5/25.. But.. 40.48 is Just Over the lower limit of 40. So.. it's tempting to call it a ZBT on 5/25.. and go on with life. : )

Now.. look at DJ-30.. from 5/25/04 .. forward. The DJIA closed at 10,117 on 5/25/04 .. ..paused the next day.. Down 7; then moved up for 8 days.. to 6/8/04 .. to 10,432. So.. it was Not useful to wait after the signal on 5/25/04 .. at least not ST. But.. after market moved a bit higher.. it then moved back Down in August, 2004.. to just Under the May, 2004 lows. That proved to be an important "double bottom".. and DJIA moved much higher into December, 2004. Interesting.. it was the May, July, August period in 2004 that led me to invent PR31b and PRN 31b. My discussions about that may be in the Hotto Club logs from then.. Or in Hottoworks Club Logs. PR63b came after KR63.. for Intermediate Term lows during Bull markets. PR31b was needed to help with double bottoms or Consolidation periods After Intermediate Term bottoms.

Back to the Near-ZBT of May, 2004..
So.. After the ZBT on May 25, 2004 ... it took 5 months to Consolidate to a final low.. in October, 2004.. before Q4 Rally into December 2004. That December high was 7 months after the May ZBT. Then came a PB in early 2005.. and another pop to new highs in March , 2005. That was 10 months after the May, 2004 ZBT. Some features during the Consolidation period were that the market did not make Much lower lows.. we have the benefit of hindsight with Charts.. to see the overall Consolidation. During that period.. trading SWGC off ST lows was profitable. Then.. in October , 2004.. we came into the Seasonal rally period.. and that worked well for us. I showed this example to get across the longer term nature of the ZBT. In this case.. there was an immediate move up.. over 2%.. but then back down to slightly lower lows.

One more comment on the May, 2004 ZBT case.
May, 2004 came just 2 months after the March, 2004 top... which was After the Huge Bull Mark et Leg up from March, 2003. So.. looking for another big Intermediate Term rally from the May, 2004 lows was asking a lot. What did happen.. was the Correction continued to the October, 2004 Low.. 7 months of Consolidation/Correction off the March , 2004 High. So.. I take the May, 2004 ZBT as a First "Pounce" of Tigers.. And first Short Covering after the two month decline. It was strong enough to suggest there would be More upside to come. It paid off within 7 months.. and more in 10 months. Meanwhile.. it was good to buy the dips.. and sell rallies.

Question: These signals mean the tide is changing? High tide in a few months ahead? If so, we buy on pullbacks....sell on rallies. right?
Answer: Well said. : )

Next... I'll go to another case.. with different conditions coming into the ZBT.
There was a ZBT on 1/8/1987 .. after only a Six day pop from 39.73 on 12/30/86 .. to 63.25 on 1/8/87 .

Now the DJIA chart..
DJIA closed at 2002 on 1/8/87 .. then just kept on Going up.. No pause at all. The DJIA reached new ATH of 2746 on 8/25/87 .. 7 months later.. one of the great Bull Runs ever.. over 35% After the ZBT.. and over 40% overall. Of course.. it was very overbot.. and Breadth deteriorated during the runup.. and then the Fed hiked Rates .. and Inflation popped up.. And then the market gave back the whole rally.. into the "1987 crash".. back to January lows. But.. meanwhile.. the ZBT paid off Big time... according to Marty Zweig's core idea. He wanted to fine those sudden surges.. that would lead to more gains over the next year or so. He noted that most investors are frightened after the First big surges.. and they stand back.. awaiting a big correction.. that may never come... and they get left standing on the sidelines. Zweig's goal was to find signals that would give investors confidence of a longer uptrend ahead... so if they bought stocks on the signal.. they could stay in for a longer time.

Now.. the setup conditions in January , 1987.
There had been the great Bull market move from August 1982.. to July, 1986.. more than Double in 4 years. Then.. the DJIA Consolidated for the rest of 1986.. did not Correct badly.. but no new highs.. just Consolidation pattern... into December, 1986. So.. in January, 1987.. there had been a 5 to 8 month Consolidation Before the ZBT in January 1987. And.. the up move that gave the ZBT.. was a BTBO.. over the Consolidation base of 1986. So.. we have a suggestion.. about what may come Immediately after a ZBT.. based on the Setup conditions when they occur.

Another ZBT occurred on 8/6/1984 . That was after a 7 month Correction.. After the huge Bull Mark et Leg of August, 1982 to January, 1984. After 8/6/84 .. the DJIA Consolidated for 5 months.. into December, 1984.. before moving higher into January/February 1985. Then Consolidation again for 3 months.. before moving up into July, 1985. July, 1985.. that was 11 months after the ZBT in August, 1984. DJIA was Not done yet... it kept moving up.. over 30% into 1986.

It's always hard looking at the period just after 1982.. Interest rates were falling.. Inflation was falling... the USA was growing fast.. after big unemployment in 1980-81. So.. the stock market kept moving up and up.. with the better conditions. Still.. the ZBT did it's job.. kept investors in stocks to benefit from coming gains. There was a ZBT on 8/20/1982 .. The market moved higher.. paused a week.. then marched higher into June, 1983.

GOOG

2008-02-04T18:47:00.001-05:00

Goog broke out of a 3 year trendline from earnings. It looks to seek support around 460. Based on past patterns, I would seek entry when it does not make new lows on daily.

FOCUS

2008-02-01T07:31:00.000-05:00

I quickly reminded myself how true this is when trading as too many investors focus on the short term results or the money won and lost in each trade rather than the net result.

The idea of the game is to make the right choices and understand that some of those choices will turn out to be losers. Losers are part of the game and must not affect you emotionally as long as the decision was correct. You must study, analyze and focus on your decisions, not on the amount of money won or lost on each individual trade. As long as your decisions are correct and consistent, you will be a winner over the long term.

Common Mistakes to Avoid while Trading:

2008-01-31T07:38:00.000-05:00

Failure to cut losses: Pride, ego, or stubbornness prevents the trader from selling.

Not knowing “how much” to trade on each position: Overtrading positions can kill your account and take you out for good (risk of ruin). (Learn to position size)

Average down in price: Placing good money after bad is a loser’s game.

Listening to rumors: Forget the talking heads, rumors and tips as they are nothing but garbage and a sure way to substantial losses

Lack of patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting

Not knowing when to sell: Determine your price objectives and risk-to-reward ratios prior to entering the trade; never allow emotions to make this decision.

Buying 52-week lows: Don’t be afraid to buy stocks making new highs. The garbage sits at the bottom along with weakness and downward momentum. Buy strength and the momentum moving higher.

Pure Fundamentalist: Technical analysis is a must! Use candlestick charts that show the price, volume and major moving averages – this is all you need, don’t complicate the process.

Making trading decisions based on taxes: Never buy or sell based on taxes alone.
Buying based on dividends: Don’t buy based solely on dividends; most growth stocks will never give out dividends

Buying familiar names: Yesterday’s leaders are not likely to be tomorrow’s stars. Look for solid new companies with great earnings, sales and a product in demand.

Don’t buy a stock based on a popular household name.

Lack of action: Be able to move on a dime. Time is money, don’t procrastinate or hope for something that may never happen.

Lack of Consistency: Develop a method suited to your personality; stick to it and don’t trade blindly.

Emotions: CONTROL EMOTIONS - RULES ELIMINATE EMOTIONS!

The secret to winning big in the market is not to be right all the time but to lose the least amount of money possible when you are wrong. As long as you win larger than you lose, you will become a consistent winner at the end of each year.

ADDICTIVE TRADING

2008-01-24T06:11:00.000-05:00

Are you an addicted gambler who attempts to puchase the market or a stock because it appears cheap after being "down too much"? Or do you trade only when you have a perceived edge. Trading for the sake of trading is a dangerous addiction which can lead to massive losses in a bearish environment. The path of least resistance is lower which means any rally should be viewed suspiciously. This is not a new message, I'm just typing it instead of saying it in a video. I remember the last bear market, and this one seems no different in terms of the psychology of the average participant. Confidence becomes temporarily bolstered by phrases like "don't fight the Fed" and CEOs who say "we are looking at weakness in the first half, but expect things will pick up in the second half of the year." In July and August, those same CEOs will say "we are seeing a bit of a rough patch but expect things will pick up in the first half of next year" and on and on... The market is broken, it will take time to heal before it can sustain a move higher again. Do not listen to people who boldy say "that was the bottom", listen to the market. It is said that the average bull market lasts for 39 months and the average bear market lasts 18 months, we could be in for a much longer stretch of selling than most people want to admit. Maybe this one bottoms in just six months, we will only know when prices turn, not when PE ratios get to a certain level or when the Fed cuts by a certain amount. A bear market is the time when the phrase "suspend what you believe and trade what you observe" means the most. Look at Apple Inc (AAPL), they have great products, management, etc. For a long time it has been a great stock and now it too is broken. In bear markets all stocks fail, all stocks.

AAPL

2008-01-23T07:28:00.001-05:00

AAPL earnings afterhours got hit hard. Although estimates were beat, market didn't like its guidance...although they always guide conservatively. Folks on the tube is saying IPOD sales losig momentum. I-Phone sales is the new product to continue momentum but since in recession, folks are not willing to buy.

It got as low as 33 last night. I expect it to bounce up to 145-150...area of previous gap. Will need to see how stock reacts when it gets into that level which can be resistance/support.

AAPL

2008-01-23T07:28:00.000-05:00

TRADER'S MANTRA

2008-01-21T23:36:00.000-05:00

Beliefs and Attitude of successful Traders and Investors

" I have a carefree, confident state of mind. I don't trade to be right, prove anything, win, or avoid losing. I don't trade to get money back or take revenge on the market. I have no agenda than to let the situation unfold in any situation it chooses and I simply take advantage of the opportunities it makes available to me.
" I don't expect the market to make me right. I don't expect the market to make me a winner. I don't expect the market to keep going in my direction indefinitely. I don't expect to get every bit of the profitable trade that is available. I don't expect to take advantage of every opportunity just because it presented itself.
" I am a consistently successful trader
" Everything the market is about to do, the market will show and demonstrate to me without me having any thoughts, beliefs, or perceptions about what it likely to do.
" The market doesn't do want I want, it does what it wants. I perceive what the market is offering from its perspective. Therefore I am flexible in my expectations.
" The market can do anything it wants, when it wants. Anything can happen, at anytime. We can't read the minds of all the other traders and institutions so anything could happen. There are no exceptions to this truth.
" I don't need to know what's going to happen next to make money overall.
" Every moment in the market is unique.
" The market has no responsibility to give me anything or do anything that would benefit me, regardless of my position, risk or desire. The market does not care, it presents its information in a neutral fashion. It has no meaning other than the meaning I give it.
" More market analysis will not improve my results, only improving my perspective, behaviour, beliefs and attitude will.
" Patterns repeat themselves in the market, but not every time.
" Making money consistently and keeping it is a by product of acquiring and mastering certain mental skills.
" Prices move based on traders and investors future beliefs and present value, thus the price move is unlimited at any given moment. Support, resistance etc. are only constructs and not reality of what the market will do.
" I trade with a systematic way of winning not to prove anything to any one or myself. It doesn't matter if I'm wrong or right. I trade with a "lets see what happens" perspective and focus on winning.
" I always, no matter what, stick to my trading, money management, position sizing rules
" I predefine the risk of every trade
" I pay myself as the market makes money available to me
" I do not need to understand how the markets work to be a consistent successful winner. It a probability game and I don't know weather the next trade will be a winner or looser, and how much the market will offer me when I win.
" I know that based on the markets past behaviour, the odds of it moving in the direction of my trade are excellent, at least in relationship to how much I am willing to spend to find out if it does.
" I am certain that I do not know what the market is going to do next, but I do know without a shadow of doubt that I have a great edge. My edge is nothing more than an indication of a high probability of one thing happening over another.
" The odds are in my favour before I put on a trade. Trading is a probability numbers game.
" Every loss put you closer to a win.
" I know what my edge looks like and thus what I am going to do, but I do not know what the market is going to do this time.
" I am solely responsible for my profitable or limited loss trades and take full responsibility. I am responsible for my success or failure.
" I act on my edges without reservation or hesitation
" I do not know the outcome of my next trade, as the outcome of the trade is unpredictable.
" There is a random distribution between wins and losses for any given set of variables that defines an edge
" I except all the risk of each trade without emotional discomfort or fear. There is not anything to fear. Being wrong, losing, missing out or leaving money on the table is part of the game. I just make myself available to what I perceive as an opportunity and act on it to the best of my capabilities.
" Losses are only part of the game if I want to win overall. Like a restaurateur must buy food to sell it, and some off it will be wasted in order to make an overall profit.
" I focus on the now as how the situation unfolds is unbeknown and thus anything could happen
" I know without any doubt at all, before I get into any trade l know how much I am willing to risk, and I am willing to let the market move against my position. There is always a point at which the odds of success are greatly diminished in relation to the profit potential. At that point, it's not worth spending anymore money to find out if the trade is going to work. If the market reaches that point I know without any doubt, hesitation, or internal conflict that I will exit the trade
" Losses are simply the cost of doing business or the amount of money that I need to spend to make myself available for the winning trades.
" When I put on a trade, all I expect is that something will happen. Regardless of how good my edge is, I expect nothing more than the market to move or express itself in some way.

MLK

2008-01-21T18:02:00.000-05:00

In honor of MLK, I've decided to go to videos on chart patterns. What does MLK have to do with patterns?

In his words...."Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity."

Head and Shoulders

Double Top

WEDGES

FLAGS/PENNANTS

TRIANGLES

THOUGHTS

2008-01-16T10:29:00.000-05:00

1. Deeply oversold cycles. Going back to the August low, we achieved some of the most oversold conditions that we've seen this decade. Considering we've had quite a few intermediate term pullbacks, that's saying a lot. When we get the kind of oversold readings that materialized last summer, its going to take some time to work them off. This is important because there are those out there with extremely bearish agendas will tell you it is precisely these oversold readings that are necessary to 'kickoff' the great new bear market.

Nothing could be further from the truth.

The lesson here is the more oversold the readings, the more they are going to have to be worked off. That's why our big pivot on the weekly scale didn't kick in until the very last high probability date. I'm bringing this up now because there were a lot of emails at the time wondering why the market wasn't dropping in September.

2. Don't assume a long term bear market. I know some of you will dispute this and you do it at your peril. You did it at your peril in 2002. This happens to be part of my background not to trust the ultra bearish agenda. I've come to look at these markets more from a supply/demand equation that anything else. I'm not talking about number symmetries here. But the simple fact of the matter is the smart money likes to buy support and sell resistance. As it turns out, there was a lot of buying interest in the middle of August. The way I understand it, money managers with lots of clout were buying after the market turned in August. These are the kind of people (at least they say they are) who have 5 year horizons and can wait out intermediate term corrections. Well, good for them. That doesn't apply to most of us. What does apply to us is whether or not these people have the courage of their convictions to hold on at times like this week. If they start fleeing, (which they are) the NASDAQ is going to drop 300-500 points and the Dow possibly a couple thousand. If they hold the line, you can say they at least are true to their word. Our job, as short to intermediate term players is to piggyback along with the trend. You can see the way this has played out but my point is until we got to this level, nobody who is telling the truth knew exactly what was going to happen.

3. Be patient. In the middle of all this mess came the Christmas holiday season. The bears had a very decent November but there comes a point in time where things are going to line up the other way. Traditionally, December is a seasonably favorable month for the stock market. Why is that? If you believe the stock market is nothing more than the true scoreboard for a rising or declining social mood, than Christmas should be a time of euphoria. People are not usually in the mood to sell stocks over Christmas. This year we had some added importance. Those of you who believe in things like the PPT, we had a low and a bailout plan just as the holiday shopping season was picking up steam. Why bet against it? Even in a hurricane, there will be the calm of the storm. That's what December was all about. I think there is a lot to be said for seasonal factors.

4. Some things are inevitable. This could be called be patient part 2. After the vicious November, it was a high probability the August lows were going to be retested. In some cases, like the SOX, taking out the August low was only the end of the beginning. Markets really don't like hanging out in the middle of trading ranges. Why? Remember, these charts are nothing more than technical representations of our hopes, dreams and desires. We, don't like uncertainty. Given the fact that highs came in on some really definitive time calculations, the markets had no where to go but down.

5. Everything is a process. Things usually take longer than we think they will. One thing I've learned is money is attracted to good ideas. It also doesn't like being lonely. This is why the very best setups are C or 3rd waves. What is a 3rd wave? Technically its nothing more than what comes after a secondary pivot. A secondary pivot is usually right near important support or resistance and sometimes a double top/bottom.

A good idea in terms of technical analysis is a setup that confirms technical evidence. It could also be a positive or negative divergence. If smart money gets the idea prices won't go lower, they'll take the relative safety of a low risk entry. But the point is you rarely will see smart traders as the first one in off the bottom.. This is something I learned from Joe DiNapoli. Its the 'wash and rinse' cycle. The smart traders wait for that SECOND thrust, no matter the time frame before pulling the trigger. Getting there requires time and patience. Its a process. Act impulsively and its like flushing money down the drain. IF you happened to be a person waiting patiently on the sidelines wanting to go long, you had to wait this week out to see if the positive divergence was going to work. Obviously it hasn't. That's not the point. The point is those who are waiting with a strong discipline know what they are looking for and will jump on it when the pattern is recognized. It will happen at some point.

6. Cycles are king. Markets are going to turn on time windows. They did so 100 years ago and are likely to do so in another 100 years. We see it time and again in all degrees of trend. Markets will react to our windows even if an outright reversal doesn't materialize. Case in point: last week. Those of you who are new to the time element should not come to the conclusion the cycles don't work because last week's 62/47 day cluster faded. Time support/resistance works the same as its price cousin and a failure is an important bit of new information. Another thing, many of the MACD divergences also tend to pay off around support/resistance at some time frame.

7. This methodology is better than I think. As Yelnick stated last week, my book and the methodology involved is still evolving. I'll just go back to what was simply stated as far back as April 2007. I believed the pivot in the fall had the potential to be the "most important of the decade." I already said that I didn't want to assume what would happen beyond a test of the August low. Part of the reason for that is for the number of times bear phases ended earlier than many anticipated. Another way to look at it is since 2002, none of them have really lived up to bearish expectations. But, with the coverage we gave the 261 week cycle last year, we are finally getting the kind of price action that is living up to the hype. Personally, I think its happening because of the way the cycles lined up last year and I don't see any other methodology out there that comes close to explaining why these things happen. I have a lot of confidence in this work but every time we come to an important turn and get the expected results we learn from the experience and helps make it better for the next time. These markets are very tricky and certainly not the tooth fairy. But I think there are times when all of us, especially me, should trust in what we are seeing even more than we do.

GAP PLAY

2008-01-09T09:30:00.001-05:00

Dip, Pop and Pop
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.
Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on.
I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.

Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.
For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.
From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.

Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.

*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.

* On GAP DOWN you reverse the rules. J

*A breakdown of either formation is bearish and should be shorted

*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish

*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)

* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.

*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio

*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)

*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses

GAP PLAY

2008-01-09T09:30:00.000-05:00

Dip, Pop and Pop
When the first move is a “dip,” I look for the first support level. Remember, if a gainer is going to hold its strength, we won’t see much profit-taking at the open, and plenty of buyers will be lined up to carry the stock to higher highs. So the pullback should remain shallow, meaning I am looking for support to form at the very first level down.

Gainers are usually opening far above any pivots, so for support levels, I will be watching things such as the premarket low, any nearby whole numbers, moving averages and sometimes the previous day’s intraday high. If the gap is large, first support should come in well above the previous day’s closing price. The opening price is the “make or break line” and is the most important pivot to either overtake or fail on. I want to see a move up and over the open price — and a break above the premarket high — to confirm that the uptrend is continuing.

Pop and Pop
When the first move is a “pop” from open, I will wait for a pullback before going long, and I might even short the pop, depending on the size of the gap. The reason is a large gap, plus any early buying, creates a lot of incentive for profit-taking, so the first climb in that case will usually be more of a short-lived pop before a deeper pullback comes in.

For first resistance levels, I will be watching things such as the premarket high, any nearby whole numbers and any previous resistance levels on the daily chart that might be nearby. Remember, if a gainer is going to hold its strength, we won’t see many people taking profits. Any short will be a small scalp against the trend, but the safest trades with the most potential will be with the trend on a counter move with its reaction(make or break line) to the opening price.

From off that first top, the pullback should remain shallow if the uptrend is continuing, and it often bottoms at a higher low, near the open. Sometimes the premarket low might also act as a support barrier. That bottom is your best long opportunity or moves counter to the trend and catalyst sentiment. The next climb should then hit higher highs. We need that higher high to confirm a continuation of the uptrend; otherwise, we could have a double top, which could be a short opportunity.

Every catalyst news stock is different, but they do follow similar patterns. Knowing those patterns prepares us with an instant game plan when we recognize them occurring which is retained as implicit knowledge for use and helps recognition when in the zone(Yoda State). And even when they break from a pattern, we can use those red flags to create new opportunities.

*The patterns could present themselves in different timeframes and could be seen in the 3 min, and/or 10 min and/or sometimes the 60 min.

* On GAP DOWN you reverse the rules. J

*A breakdown of either formation is bearish and should be shorted

*The bigger the pullback(drop) the weaker the trend.
Watching what type of pullback-shallow bullish; deep bearish

*Watch Open price reactions-the opening price is very important and should be a major pivot line(the make or break line)

* Create pivot lines for pre-market low, nearby whole or strike numbers, moving avg., previous day’s intraday high and analyze using Google Finance “extended trading” charts.

*Sentiment analysis with TRIN and TICK indicators as well as overall market indicators(VIX) are an important factor in analyzing the risk/reward ratio

*Draw trendlines and try to catch the contra- move on a trend (i.e. buying a dip on a bullish report and a bullish trend formation)

*If flat lining with confirming volume occurs this portends strength. Watch for the sharp sell off breaking technicals.
Manage risk through asset allocation and formulating and adhering to stop losses

THE FIRST 10 DAYS

2008-01-02T17:39:00.000-05:00

Looking at data back to 1962, if the SPX closes higher after the first 10 days’ trading in January then historically there has been an 82% probability (23 of 28 iterations) that the index would work its way to a still-higher close at year-end. And the overall average gain beyond that mid-Jan close has been 10%. The average mid-Jan to year-end gain in the years that continued higher was 14.5%. The average loss in the down years was 10.8%.

Conversely, if the first 10 trading days of January lead the SPX to a close that’s lower than the end of the prior year, then the odds have been just 56% (9 of 16 iterations) that the index would work its way higher at year-end, with an average gain of just 3%. After a down mid-January close, however, the years that rebounded to higher year-end closes showed an average +16.4% mid-Jan to year-end rally while the years that closed lower than the mid-January close averaged a 12.8% decline.

So, if the first 2 trading weeks of this year generate a positive trend, then there’s a very high probability that the balance of the year will be pretty strongly positive. If the first 2 weeks of trade generate a negative trend, then it’s basically a crap-shoot as to whether the year will show a net positive or negative trend.

ISM INDEX

2008-01-02T08:49:00.000-05:00

ISM Index-December was 47.7 vs est of 50.5 consensus.. And 52.0 by Briefing.com.

The ISM Index has been down for 6 months in a row.. from June high of 56. Below 50 is Contractionary. New Orders were down Hard at 45.7.. Lowest since October 2001. Export Orders fell to 52.5 from 58.5... This is a first sign of what we looked for.. with the Euro at record highs.. and thus Europe slowing. Prices paid fell to 48.0.. from 67.5.. suggests more weakness. Prices paid... from another source reads 68 .. up from 67.5... That suggests less weakness than the Briefing.com numbers. New Orders index fell to 45.7% from 52.6%.. lowest since Oct 2001. Slower demand .. more of a problem than excess Inventories. Remember.. in Q3.. the GDP growth was boosted a lot by Inventory growth... so that is a concern now. The Prices paid will put pressures on Profits.. since manufacturers generally have not much pricing power.

Overall.. the ISM Index report today was such a shock to markets.. since it came just after the string of low LEI numbers.. and the ECRI WLI at lowest growth rate in over 5 years. Also.. the Initial Claims have been inching higher.. though not yet saying Recession as yet. The talk is of more layoffs coming in Financials. Corporations have held off laying off workers.. because of strong balance sheets .. and they don't want to let go qualified workers.. unless they see significant slowing. Qualified workers are still in short supply. The strong balance sheets are probably the difference. In Y2000 they first tried holding onto workers.. but then started laying off big time... once the slowdown became evident. Balance sheets were not in such good condition then. And the ones who held on too long suffered Losses.

Initial Claims will be reported tomorrow. We will get more evidence; probably not much change over the Holidays. ADP will also give estimates of New Jobs tomorrow. Last month they estimated way too high. That's for last week.. so workers may take a few days to file Claims.

NEW YEAR'S RESOLUTION

2007-12-31T20:24:00.000-05:00

Coaching Yourself for Profitable Trading Performance in 2008

In my recent post, I mentioned that there is a considerable overlap between coaching and the short-term approaches to behavior change known as brief therapy. Many traders try to make accelerated changes in their cognitive, behavioral, and emotional patterns without understanding how such changes can be made and sustained. Indeed, few of the professional trading coaches that I’ve met seem to be aware of the brief therapy literature and the extensive research on change and how it occurs.

So how can you use this growing area of research and practice to aid your progress in 2008? Here are a few findings from the brief therapy world and their implications for coaching yourself to successful trading performance:

1) Keep It Focused - The research is unequivocal: focused efforts at change are more likely to occur–and more likely to occur in a relatively brief time frame–than efforts to change many things at one time. Establishing and maintaining a change focus is perhaps the single most important thing one can do to ensure that efforts at improvement will pay off. The focus should be grounded in a thorough assessment of the problems to be addressed and the strengths to be built upon. Many times traders assume that their problem is one thing or another, when in fact they haven’t really drilled down into their trade data to identify what, specifically, they’re doing right or wrong. Working on something broad and vague, such as “discipline”, is not a focus. Focused changes should identify specific things to do differently and concrete steps to make a difference.

2) Keep It Consistent - Research into short-term change finds that involvement in the change process–consistent efforts over time–is associated with success. Traders who work on their trading in a structured, daily fashion are much more likely to benefit from coaching than those who limit their change efforts to weekly or monthly reviews. The goal of all short-term change is to create new, positive habit patterns. It is impossible to create those patterns without regularity: doing new things so consistently that they become part of the self.

3) Keep It Doable - Success breeds optimism, motivation, and further efforts at success. Effective change efforts create a virtuous cycle of continuous improvement. If goals for change are too difficult, they will create only frustration and discouragement. It is better to start small and ensure success than to try to make the most complex changes all at once. If you’re working on entering or exiting trades differently, just try it for a single day and see how it goes. Then modify the goal for the next day. By focusing on the next day’s trade, you keep goals concrete and doable.

In general, I would say that traders tend to overweight the importance of psychology in their results and underweight trading mechanics: how they execute trade ideas (getting good entry prices, not chasing moves; ensuring that each trade has a favorable reward-to-risk profile) and how they set and follow criteria for exiting trades (price targets as well as stop losses). To be sure, psychological factors can interfere with the implementation of those mechanics, but many traders simply lack sound rules for entering and exiting positions and instead make decisions impulsively, on the fly.

A review of one’s own best trades can be very effective in identifying one’s own “best practices” regarding trading mechanics. Those best practices can then be translated into focused, doable goals that are pursued with consistency.

Best of luck in your development in 2008. The posts below may be of additional help in your self-coaching efforts.
http://traderfeed.blogspot.com/

ALPHA TRENDS

2007-12-28T11:16:00.000-05:00

OPTION DRAGON'S MANTRA

2007-12-25T23:35:00.000-05:00

OPTION DRAGON'S MANTRA

1) We/I believe it is actually possible to make money trading the markets.
2) We/I believe it is possible for us/me to make money trading the markets.
3) We/I believe that we/I deserve to make money trading the markets.

“We/I are/am the Greatest traders Ever.
We always work successfully together.
We/I are/am making millions of dollars trading the markets every year.
We/I are/am happy and content, appreciative of our trading profits.
We/I are/am always calm, collected, focused.
We/I are/am always in the zone.
We/I come from positivity and abundance.
We/I cultivate and sustain a sense of ease remaining in the zone,(the Yoda state).

Have focus, patience, and pick plays with high probability of success.

Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment.

Just Make Good Trades.”

NOTES:
1) We/I believe it is actually possible to make money trading the markets.
2) We/I believe it is possible for us/me to make money trading the markets.
3) We/I believe that we/I deserve to make money trading the markets.”

Each one is different. To believe you must give thought and feeling to it. Give it the feeling of satisfaction/joy to the thought. Saying it means nothing. Believing in it means everything. Think about why each is different and its different meanings.
“The Secret ” is true.

Got these quotes from an article written by a trading coach.

“We/I are/am the Greatest traders Ever.
We always work successfully together.
We/I are/am making millions of dollars trading the markets every year.
We/I are/am happy and content, appreciative of our trading profits.
We/I are/am always calm, collected, focused.
We/I are/am always in the zone.
We/I come from positivity and abundance.
We/I cultivate and sustain a sense of ease remaining in the zone, the Yoda state.

Have focus, patience, and pick plays with high probability of success.

Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment-(quote from Buddha)”
(Lion in the Safari)
Just Make Good Trades.

I also ask myself after reading all research data from the morning “What are the possible themes today and what events are there” and think like a lion in the safari, cannot chase everything otherwise you get tired, pick a high probability target.

It is important to talk about things as present tense-Now. No “will”s but “Am”s.
So what if some are not true(can’t tell that to me now that I’ve said it about a million times), your subconscious and brain can’t tell! They believe and follow the heart. Give feeling to it while saying or thinking it. Feeling of joy/happiness.

Each sentence to me meant something different and this list has been changing until recently (i’m sure it will change some more but not much). I trade with my brother and including you guys/gals so the 2nd sentence is key as well. Being appreciative of your trading profits boosts your trading profits especially before it happens!
Staying calm is important but if you wear your emotions on your sleeve then it is important not to suppress your emotion but to express it and then recognize it and move on quickly, as you do it over and over again it becomes easier to do. Always stay positive and Happy!

Coming from positivity and abundance is important because it is opposite of desperation and negativity which leads to bad trades. Cultivating and sustaining is very important as you harvest and plant new seeds of trading profits in continuum. The Buddha quote is great to focus your mind on the NOW of the moment further sharpening the scope.

This next poem is a favorite of mine and was in the movie Akeelah and the Bee (2006).

Our deepest fear is not that we are inadequate.
Our deepest fear is that we are powerful beyond measure.
It is our light, not our darkness that most frightens us.
We ask ourselves, who am I to be brilliant, gorgeous, talented and fabulous.
Actually, who are you not to be?
You are a child of God.
Your playing small does not serve the world.
There’s nothing enlightened about shrinking so that other people won’t feel insecure around you.
We were born to make manifest the glory of God that is within us.
It is not just in some of us - it is in everyone.
And as we let our own light shine,
we unconsciously give other people permission to do the same.
As we are liberated from our own fear, our presence automatically liberates others.

-Marianne Williamson

BE GLORIOUSLY BRIGHT!

Option Dragon's Thoughts

2007-12-23T20:36:00.000-05:00

Market Forecast
BTW I love using the TRIN and TICK indicator for the NYSE and Nasdaq and see it as a game changer in order to gauge short term liquidity flows and underlying price actions, as in short term demand and supply. I have found it very useful and another important piece to my repertoire. As you can see by the chart, the market was raising bids for the past 2 days as it never broke .70. Use the TRIN, TICK value table below to feel the zones in which the market is in, sentiment zones as I like to think of it. As you can see the market was in a Mega-Bullish mode for the past two days and it will be interesting to see if the market stays in the lower zone on the TRIN’s through the end of the year. Keep an eye on it and try to make correlated high probability plays with TICK and TRIN as another variable within your trading formula. (Here‘s a place that you can read up more about TICK and TRIN.)

http://traderfeed.blogspot.com/2007/04/trading-techniques-collection-of.html

It is now holiday trading and historically we should trail up into the New Year. The technicals on Happy’s market index charts all show a higher low on the longer term charts and I believe that we COULD be almost done working off the correction phase the market has been in.

After all the writedowns, chicken little crying about how the sky is falling from the media and bloggers, here we are still above November lows and still attracting large numbers of buyers. Why aren’t we lower and doesn’t the market know we are in a recession? Maybe it already knew and now is pricing in a different scenario in 6 months. I mean is this really any new news? What the market loves is certainty, transparency and clarity and as corporations become more transparent and truthful about the losses suffered by the subprime fiasco the market gets more clarity on the financial situation. So I say give the market what it wants give it clarity, give it transparency, dump all your bad news now so we can focus on better things such as earnings!

The earnings season is approaching and like my 500% (5 bagger, it went from $110 to almost $150) on DECK earnings last time, I still think DECK and Uggs is the consumer play to be in. So I went shopping last night and JWN (Nordstrom’s) was sold out of the $50 kid’s Ugg’s for xmas! I had to order a pair of Uggs from another JWN location bcuz the $150 pair of Uggs I bought for my wife was sold out and the sales rep told me, she can’t believe it and whatever they get they sell. Everywhere I go I see young and old wearing them, it reminds me of the iPod craze.
Hmmm, it pays to be in trend and be cool! J It would not surprise me to see DECK at or near $200 after earnings. I believe AAPL and GRMN both had the best sales ever and should be watched as well.
Jon Najarian of Fast Money as well as King Goldman Sachs believes that the option prices and actions are expecting one of the most volatile Januarys on record. Please be prepared in fastening your seatbelts. And that financials could be moving significantly higher (gotta hawk GS and MA).

Jon also notes that China could be primed to rally big in the next couple months. When you look at the FXI or large Chinese corporations CHL, PTR, LFC they have been consolidating for a long time (2 months)since their highs in late October as the correctly prophesized correction occurred in sync with their Chinese market seasonal trends.

A lot of value fund managers are talking about investing in the US since the correction when comparing valuations on a P/E basis with other global markets. But as always most of that money is earmarked for China. Which is fine by me because as Ken Fisher has indicated, the larger global markets always pull the smaller ones and lets face it the US market now only makes up a little over 30% of the global economy.

Another point I’d like to make is the cyclicality of wealth in America between housing and the stock market. Now that the housing market has deflated, the stock market will rise substantially comparatively. This mechanism allows for substitution of wealth creation and helps support American consumption which is the primary catalyst for our economy. The stock market WILL be the new prosperous game to be played speculatively by the same money that was chasing the housing boom. The appetite for risk must be appeased because without risk there is no gain. Cramer as I, believe that the secular bull market in Agriculture will continue as well as the solar plays.

My favorite agriculture plays are POT, MOS, AGU, MON, CF, MOO, TRA, BG, DE. The recent Energy Bill passed by the US Govt is really a Food Bill. It will put more constraints on fertilizer supplies and grain supplies as the bill calls for millions of gallons of more ethanol. Right now a Russian fertilizer company is negotiating with the Chinese for delivery of fertilizers next year and as fertilizer prices jump $50-$100 extra a ton, we could see the highest prices ever for ferts with this new Russian-Chinese deal once it is finalized. It is rumored to be completed in the next couple weeks. Now until fertilizer prices drop substantially from the highs, this bull market should continue for the foreseeable future. Analysts are going to have to play catch up with 2008-2009 estimates at this rate. They are WAY behind the curve! Ferts and Ags as the new boom craze, who ever said food was boring!!!

Solars could be part of the big solution to save our planet!!! And it is the biggest threat to the oil establishment! I remember Eric Bolling on Fast Money when he said solar was hype. Of course he said that, he and his cohorts have been helping push up oil prices for the past 3 years, if solar becomes the big thing, oil demand will drop substantially and one day oil will be used only for taking that squeak out of your kid’s bicycle chain not filling your car! (Its solar powered). Oil will never go away but it will soon be the bridesmaid instead of the only bride. My favorite solar plays are FSLR, JASO, STP, SPWR, PBW, and WFR.

I believe the market will go higher from here and we will not test November lows. The focus will be on earnings soon so writeoffs could take a back seat for the time being and remember the FED is cutting. The Fed is cutting and the markets are climbing the wall of worry. Yeah only 25 basis point cut and we growl but the fed is still in cutting mode and will cut 25 every time they meet until we are out of the woods. The market is a leading indicator and looks out 6 months ahead, we have the Bernake put and Congress put in place to provide help if the market encounters problems and as Soros believes the market not only gauges the temperature and well being of the economy but can also be the cause of illness to the economy so it is in the best interests of EVERYONE involved to make sure the market doesn’t crater. Housing has deflated consumer consumption and if the market tanks and takes everyone’s IRA, 401Ks, trading accounts and mutual funds down they will spend even less.

It is a fluid situation and news will be priced in as it comes but as more bad news comes out and we still rally, I feel good about the prospects for 2008 and it could become one of the best years for the market ever.

Happy Holidays and enjoy spending time with your cherished loved ones. We trade but that’s not who we are, we are all loving sentient beings who happen to trade for a living. We are all very important to someone. Remember what‘s important, and remember that we need to be content to feel happiness.

Besides that you better rest up for what could be the biggest ride of our lives in the markets! Stay in the Yoda state (calm, concentrated focus needed to access implicit knowledge, unemotional) and the Yoda Santa might just bring late gifts in January!

Hope you enjoy!!

RIMM

2007-12-21T13:19:00.000-05:00

FW called the low of the day right here. Notice the middle window. There was an upside down ice cream cone preceded the low of the day. Nice call.

DA 2RTH

2007-12-20T22:01:00.000-05:00

1. Failure to make new highs is ALWAYS the start of wave 2.
2. Failure to make new lows in a downtrend is ALWAYS the start of wave 3.

These waves can be defined by snap back ups and/or downs.

MARKET BUDDAH

2007-12-13T16:26:00.000-05:00

We/I believe it is actually possible to make money trading the markets.
We/I believe it is possible for us/me to make money trading the markets.
We/I believe that we/I deserve to make money trading the markets.”
We/I are/am the Greatest traders Ever.
We always work successfully together.
We/I are/am making millions of dollars trading the markets every year.
We/I are/am happy and content, appreciative of our trading profits.
We/I are/am always calm, collected, focused.
We/I are/am always in the zone.
We/I come from positivity and abundance.
We/I cultivate and sustain a sense of ease remaining in the zone.
Have focus, patience, and pick plays with high probability of success.
Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment-(quote from Buddha)”
I also ask myself after reading all research data from the morning “What are the possible themes today and what events are there” and think like a lion in the safari, cannot chase everything otherwise you get tired, pick a high probability target.
It is important to talk about things as present tense-Now. No “will”s but “Am”s.

So what if some are not true(can’t tell that to me now that I’ve said it about a million times), your subconscious and brain can’t tell! They believe and follow the heart. Give feeling to it while saying or thinking it. Feeling of joy/happiness.

GRMN

2007-12-08T10:31:00.000-05:00

The effects of news by Tom Tom really killed me. But, once again a falling knife should never be attempted to catch. Also, I got whipsawed out on the last trade. Never place any stops during the first hour of trading. 90% of all gaps get filled.

BIDU

2007-12-08T10:01:00.001-05:00

Rule #1....never, never, never, try to catch a falling knife!!!

AAPL

2007-12-07T18:18:00.001-05:00

This series of trades really shows my inexperience. Here is the list of lessons learned:
1. Never establish a position when stock is falling
On 11/12, notice i entered 3 times: entry...sell...entry.

2. Sell on gap ups or show of strength
On 11/15, stock gapped up...and then filled back down.

3. The trend is your friend.
I tried to play puts after seeing the gap up being filled. This play is way to complex for my level.

4. Proper entry would of been 11/28
this is the start of wave 3. i would of avoided too many entrys and exits and worrys.

I don't mind the mistakes. I'll call these lessons. Hopefully, I will always remember these lessons in future trades.

HEY COACH

2007-11-30T22:29:00.000-05:00

The Devon Principle states that we are what we eat and that, psychologically, we are always digesting our experience. Internalizing our experience makes us who we are.

If we have negative experiences, we internalize that and develop a loss of confidence and motivation. If we have positive experiences, these become part of our outlook on ourselves and our world.

To mentor yourself, your most important step is to create positive learning experiences that will sustain your motivation, interest, and sense of efficacy.

Every trading session should involve working on a specific, doable goal and making progress toward that goal.

We can't control how markets move, so we can't control whether any single trade we make will be profitable or not. But we can control how we make trades: how we enter, how we size positions, how we exit, and how we contain losses. Having rules about all of those helps us set specific goals about the process of trading, rather than about the outcome.

The goal of your learning is to trade well, just as the goal of a pitcher is to make a good pitch. If you do that often enough, you'll win your share of outings.

But the equally important reason for setting attainable, concrete goals is that--as your own coach--you are creating the experiences that you'll be digesting. By setting yourself up for success, you build a positive identity as a trader, day by day.

Without goals, there can be no sense of attainment. Without the sense of attainment, there can't be an internalization of competence and confidence. You generate your own sense of control by--trading session by trading session--controlling your own pursuit of trading goals.

THE MARKET

2007-11-24T10:20:00.000-05:00

From these charts, it looks like wednesday's low needs to be retested along with long term trendlines and resistance. It looks more down is in order than up. Although we are oversold, the bounce to come would probably be limited to previous trendline and/or resistance. At that point, will come the retest.

The timing of retest will coincide with the scheduled FOMC on December 11. I expect a "sell on the news" play to unfold in the next 2 weeks. Cash is king here.

TACTICS

2007-11-24T06:27:00.000-05:00

I see the market trending until the fed announcement on Dec 11. I'm 90% cash. GOOG and AAPL are the only positions I'm in. Here are my moves:

Entry @ 630. Stocked rallied up to resistance/support area defined by stalled rally last month at the same spot. Volume is minimal to get to here. I sold 1/2 position towards end of trading day. Bought DEC 640 puts to hedge remaining position. Place a stop @ 640 but will remove it since I bought the puts.

Entry @ 153. Sold all Dec 175 calls today and bought Dec 155 puts at end of trading. Notice how stock behaved last year at this time. It usually doesn't make its big move here. Also, it is at resistance here. It may just be stuck in a consoladation range here.

THANKSGIVING

2007-11-21T21:03:00.000-05:00

GOOG, AAPL and RIMM are ready to launch despite the down-trending market. Each of them have been making higher lows while the market has been making lower lows. I've bought on any gap down...and sold on any gap up. Using 15 minute charts has been working for the past week...playing both long and short using puts and calls. The past four trading days has definitely been a roller coasting ride. Thank God Thanksgiving is here. A day of rest...family...eats...and many reasons to give thanks. Life is great!!!

The Bears Are Here

2007-11-15T21:33:00.000-05:00

I was able to get some Dec calls on AAPL, RIMM, MA and BIDU towards the bottom on Monday. Each gapped up big on Wednesday. That was the time I should of sold my calls and go short by buying puts. Instead I held. Thursday, the decline continued to test the lows on Monday. This was the UDU play I was talking about...but...it occuled in 3 days instead of one week. This market is very, very volatile. Going into the last day of options expiration, I just missed on buying BIDU Nov 330 calls for 5.0. Instead, I bought OEX 185 calls. My tactics are definitely on point it just needs tweaking in reacting faster than anticipated. A great week...a great month...heck...a great year!!!

Positive Trading Behaviors

2007-11-12T21:32:00.000-05:00

Six Positive Trading Behaviors
There is much more to good trading than merely eliminating bad habits. Here are six trading behaviors I find among many of the best traders I’ve had the pleasure to work with:

1) Fresh Ideas - I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.

2) Solid Execution - If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.

3) Thoughtful Position Sizing - The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period to try to make their money back. They trade smaller when they’re not seeing things well, and they become more aggressive when they see odds in their favor. They take reasonable levels of risk in each position to guard against scenarios in which one large loss can wipe out days worth of profits.

4) Maximizing Profits - The good traders don’t just come up with promising trade ideas; they have the conviction and fortitude to stick with those ideas. Many times, it’s leaving good trades early–not accumulating bad trades–that leads to mediocre trading results. Because successful traders understand their market edge and have demonstrated it through real trading, they have the confidence to let trades ride to their objectives.

5) Controlling Risk - The really fine traders are quick to acknowledge when they’re wrong, so that they can rapidly exit marginal trades and keep their powder dry for future opportunities. They have set amounts of money that they’re willing to risk and lose per day, week, or month and they stick with those limits. This slows them down during periods of poor performance so that they don’t accumulate losses unnecessarily and have time to review markets and figure things out afresh.

6) Self-Improvement - I’m continually impressed at how good traders sustain efforts to work on themselves–even when they’re making money. They realize that they can always get better, and they readily set goals for themselves to guide their development. In a very real sense, each trading day becomes an opportunity for honing skills and developing oneself.

These six criteria, I believe, can form the basis for effective report cards. Traders can grade themselves in these six areas and, over time, establish where they’re strongest and weakest. I find such self-appraisals very helpful for coaching; ultimately they provide goals for self-development and criteria for measuring progress over time. In no small measure, good trading boils down to three factors:

1) Having a demonstrated edge;

2) Having the skills needed to exploit that edge; and

3) Having the resilience to bounce back when the edge is no longer present.

It’s the traders who have all three qualities that are most likely to make a long-term career out of the markets.

ON WATCH: UDU

2007-11-11T23:11:00.000-05:00

These stocks are seeking support at 50MA. Once they get to the 50MA, I expect a bounce back up to 50%Fib...then it will retrace back down to test the 50MA again...then back up with a breakout to next bull target...i.e. up/down/up (UDU) The bullish trigger are set just above the 50ma with stops just below the 50ma.
Pattern: Up...down...up (UDU)
------------------
RIMM - Bullish trigger @ 106.50. Stop @ 103.50. Target=119.
Pattern: UDU = 39 points
ISRG - Bullish trigger @ 258.70. Stop @ 255.70. Target=283.
Pattern: UDU = 120 points
-----------------------
CME, BIDU, AAPL and FCX are all in this pattern. If this works out, what a play to end an already great year!!!

IN PLAY

2007-11-11T22:58:00.000-05:00

GRMN - Bullish since 11/8 @ $84. Stop @ 82.50 (just over the 200ma)
Target: 50ma around $101.50
Add to position @ 92.50

AAPL - Bullish since 11/8 @ 175. Did not have a stop. A bag holder for now. I'm setting a bullish trigger @ 162. It looks like it is seeking the 50ma @ $161.40. If in, stop will be @ 160.40. Target: 175 the gap at 10/22.

BIDU - Bullish since 11/8 @ 365. Did not have a stop. A bag holder again. Setting a bullish trigger @ 307.50. It seems to be seeking the 50ma @ 306.82. If in, place stop @ 304.50. Target= 355...20ma
----------------------------------
I did not expect the huge downside move on 11/8. Instead of setting bullish traps, bearish traps were indicated. Another mistake, was not setting stops for all three. I'm holding the bag on two of the three positions. Luckily, they are Dec calls.

Problems:
**bad entry points
**buy puts instead of calls
**no stops

Solutions:
* entries will be off 50ma or 200ma (my usual bread and butter)
* set stops just over the 50/200 ma

Will concentrate on making the right moves. If the right moves are made, success will always follow.

I'm now armed and ready to trade. Happy Veterans Day. :-)

CONSISTENCY

2007-11-11T17:18:00.000-05:00

How to Regain Your Trading Consistency

Brett N. Steenbarger, Ph.D.

www.brettsteenbarger.com

A reader recently wrote to me the following:

I was a successful consistent trader who always hit singles and doubles ($1000-$3000 a day) for 48 months in a row without having a losing month (1999-2003).Then one day I struck out. I lost $38,000 in one stock and had my first losing month as a trader ever. Since then I have not had two consecutive winning months and in fact have only had a handful of profitable months since then. I am still looking for the road back to consistency. No matter how close I get I always find a way to screw it up even if it is on the last day of the month. Or I give back the month with just some silly unimportant trade that turns into a disaster. It is like I subconsciously look for these situations just so I can mess up.

This is not such an unusual scenario. One large loss can trigger a cascade of attempts to make back the money, further mistakes, and expanding losses. The key is breaking this cycle of losing money, attempting to make the money back with aggressive trades, and continuing to lose.

The first thing I'd have our trader look at is where he is placing stops and targets for his trades. Note that his successful period was 1999-2003. That was a period of much higher price volatility than we've seen since then. What constitutes "singles and doubles" in a high volatility environment is a home run trade in a slow, low-volatility market. It is entirely conceivable that our trader is placing targets too far from his entries, allowing small gains to reverse on him. Similarly, he may be letting trades get too far away from him simply because he is calibrated to a higher level of volatility.

A good way to test these hypotheses would be to study trades over the last several months. If losing trades are larger than winners on average, and if many losers start out as winners, that would suggest that our trader needs to adjust to the post 2003 environment.

To break the cycle mentioned above, the first step is to drastically reduce trading size. I would cut size to 1/4 the average at the most. The goal is to keep a little skin in the game, but take P/L (and the push to make back money) off the table temporarily. The initial objective is not to make money, but to regain a trading rhythm by getting back to singles and doubles.

The next step is to identify those singles and doubles. That means deconstructing the account statement and identifying which trades are making money and which aren't. I would break the data down into time of day, stock/index being traded, long/short, and size. I would also look to see if there are large outlier trades to the downside that are pulling down P/L, and if there are some trades that are making money consistently.

Once our trader has identified what's working, the idea is to keep position size fixed and *only* trade those setups that have been working. This is the foundation to build upon. These setups can be written down and mentally rehearsed ahead of the trading day to build consistency. The idea is to not increase size *and* not trade other patterns until consistency is achieved with smaller size and the most successful setups.

There is only one cure for trauma, and that is repeated experiences of control and safety. We want trading to be routine, not highly emotionally charged.

Finally, I would encourage our trader to take a look at how he is viewing his situation. Note above that he talks of the $38,000 loss and the silly trade that "turns into a disaster" as if these are things happening to him, not things that he is actively doing. A simple strategy would be to have the trader write down the four things he is responsible for prior to each trade:

* The Entry
* The Target(s)
* The Stop
* The Position Size

We can't control whether any individual trade will be a winner, but we can control how much we are willing to bet on each trade. Outsized losses don't happen to a trader; they are actively caused. It is harder to allow those things to occur if you're talking aloud those four trade parameters and have them written in front of you.

So there it is in a nutshell. My advice is to get small, get selective, and take responsibility for what can be controlled.

WORDS FOR TRADERS

2007-11-09T16:49:00.000-05:00

So what's an investor to do?

The first thing to do is an attitude check from the neck up.

One of the most important tools you posses as a trader is your mind. Attitude can either make or break you as a trader.

To become a successful trader it begins with believing in yourself and having a winning attitude.

Everyone wants to be a winner; at least, they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work; including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an "I am responsible for both my failures and successes" attitude.

So, where does the would-be trader start to become a success? By focusing on the tasks at hand. Most of all, treat trading as a business. And, as in any business, money management is critical.

Money management, next to trend, is probably the aspect of trading most overlooked by smaller investors. Man, by nature, is an optimistic creature and the amateur trader often acts instinctively. Unfortunately, this instinct or optimism is often the undoing of the smaller trader.

When a person enters a trade, he does so with the hope it will be a winner. When the position goes against him, he keeps thinking (or hoping) "it will come back." He knows he should have a stop in place, but hope keeps telling him to stay just a little longer since everybody knows "you always get stopped out the day the market turns." Eventually, hope turns into frustration, desperation and, finally, panic, prompting the trader to issue a GMO (get me out) order.

If the trader hasn't learned his lesson by this point, he develops the "I have to get it back" syndrome. He generally rushes into another poorly planned trade, throwing good money after bad.

Winners show several different characteristics. They enter the market knowing they can be wrong and, in fact, are wrong as often as they are right. They have learned markets don't run on hope. They understand markets tell them when they are right or wrong. When a trade is losing money and getting worse, the market is telling them to get out.

Bad Trades

A bad trade is like a dead fish: The longer you keep it, the worse it smells.

Good Trades

When a trade is making money, the market is telling them they are right and to let the position ride.

Don't ever do this …

Winners don't add to, or "average", losing positions. They dump the trade and go looking for a new opportunity. Successful investors may add to the winning trades. When ahead, they press their advantage while remembering that at any time the market can turn on them and prove them wrong.

It trading keep your mind clear and do not get emotional about a trade. Remember you are not married to a stock rather you are in the dating game.

Next week… it's a surprise.

Have a great weekend and a super trading week.

SETTING TRAPS

2007-11-08T07:22:00.000-05:00

Since I don't really feel comfortable playing the "DON'T PASS" line, I will set some traps if the following positions get pushed down to fill some gaps.

MA If price goes down to $174.50, the buy 10 contracts of MALLT Dec 200.
GRMN If price goes down to $84, buy 10 contracts of GQRLA Dec 90
AAPL If price goes down to $176, buy 10 contracts of APVLQ Dec 185

GRMN

2007-11-07T08:34:00.000-05:00

I played this to bounce off support. It made a 5 point move. Now, news of Tom Tom's higher bid has the sent the stock tumbling. I'll take my loss. Realize can't win the all. Still have lots of ammo to play with.

The Passline

2007-11-02T23:17:00.000-04:00

Ever play craps at a casino? Players have two choices to place their bets. They can play with the shooter by putting their chips on the "passline". or...they can bet against the shooter...and in most cases, bet against the majority of players at the table...which ain't cool. Needless to say, those who play "don't pass" are subconciously hated by the majority who are with the shooter. This craps mentality can be seen in the market ala longs vs shorts. With that said, I felt the market would take a dive on a sell on the news Fed rate cut. I wanted to place bearish positions...but...for some reason, I didn't. I guess I'm a natural "passline" player. I got out of BIDU way too early...but...still had a significant profit. Instead of buying puts, I'm holding 2 small call positions: MA and GRMN. My GRMN position is taking a huge hit...however, I'm holding because there is evidence of this stock being manipulated. The evidence is...the low of the week came today at $97.14. When checking out this weekly graph, guess what the 20MA...the spot to the penny where GRMN stopped this decline. You got it...$97.14.

T2118 + Microsoft earnings =

2007-10-26T07:32:00.000-04:00

In area for a turn around in market ala end of 6/07 and beginning of 7/07. With MSFT report last night, should be enough to scare shorts and attract buyers. This up move may be an opportunity to set bearish conditions like the downside in the middle of 7/07... Let's see!!! :-)