Archive for October, 2010

Summary of Trading for Week of October 4

It was another week of unusual market moves and prolonged periods of price stagnation. As I have been saying for quite some time, the recovery from our current recession will be typified by a “mixed bag” of economic reports. Of course, this week was no exception, though the market chose to react to various reports in unusual fashion.

Friday was probably the most baffling day this week. Most economists expected the economy to add 8000 new jobs, but ADP reported that the economy actually shed 95,000 jobs. As you can see, the experts missed this particular prediction by nearly 100,000 jobs. You would expect the market to react negatively to this sort of news because employment has become a very hot topic of late, but the market chose to march merrily along its way and posted a healthy gain for the day. There are several technical factors that contributed to this gain, but it was by and large a confusing reaction to very bad news.

This sort of market action was the norm for the week, though we did experience some prolonged periods of market stagnation. Of course, this doesn’t surprise me. Since the futures market is based upon broad stock market indices, the market needs smaller investors to reenter the market and purchase stocks. I would be hard-pressed to come up with a rationale for anyone to initiate a long position in the current economic climate. To say the least, the potential for sizable gains in the market are less than compelling; on the other hand, it would not be difficult to envision a sharp correction from current index prices.

It is my opinion that the majority of market participants are traders, not investors. While traders provide an essential function in the market, the market requires smaller investors investing on a fundamental basis. Yet, the fundamentals for our current market condition are shaky and there are many pressing questions about our economy. The dollar has been weak; volume on the ES e-mini contract has been, at times, light and erratic.

To compound the current economic woes, a cottage industry in disseminating bad economic news has kicked into high gear. This is not an unusual phenomenon during recessionary periods. Quite simply, bad news sells. Of special note are the gold bugs, who come out of the woodwork during every recession and tout the benefits of owning hard assets like gold. I feel that some exposure to gold is essential for most individual investor’s portfolios; but dumping your life savings into gold is not a wise idea. There can be no disputing, though, that gold has enjoyed a very profitable run in recent years, and has outperformed the stock market of late by a considerable margin. But my point is a simple one: buying massive amounts of gold is simply not the answer to our current economic recession.

We were able to trade very effectively this week though, as numerous opportunities for high probability setups were the norm. Generally speaking, we earned between $200 and $400 most days this week. Friday was the exception, though; as the market was particularly flat and we managed only a small gain of $100. Fortunately, we had no losing days this particular week.

The E-Mini Trading Professor System trading room enjoyed a wide variety of visitors and the conversation was brisk and interesting. Lots of new faces, and more new long-term customers joined than usual. As a trader, I feel like traditional investors are currently looking for alternatives for making money in ways that are untraditional, especially participants who have typically invested solely in the stock market.

Looking ahead, next week would appear to be a reasonably volatile week as there are a plethora of importance and pertinent fed and fed agency announcements that the market will have to digest. All in all, it should make for an interesting and profitable week of trading.


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Day Trading: We Are up, We Are down, Isn’t All Bad?

For swing investors and longer-term investors the markets haven’t had much to offer in recent months. We seem to be stuck in a narrow range, without any end in sight. So if you’re looking for long-term gains in the market, you’ve had a pretty rough go. And frankly, it is hard for me to see any compelling reasons to invest the long side of most stocks. There are, of course, exceptions to this statement; but the vast majority the market is mired in a lethargic semi-coma.

Of course, for us day traders it has been a wonderful ride. The market may start upward, the market may rocket downwards, then bob and weave throughout the course of the day and finally end up very near where we started. This roller coaster is a day traders dream, and we have certainly taken advantage of the sometimes unpredictable movement in the market. In fact, there are days when I have absolutely no idea why the market is moving up, or moving down. Not that it matters, I trade with the market offers and don’t you have any serious consideration to why the market is behaving in a certain manner; and considering the lunatics who are currently at the helm on Wall Street, is probably best to not give any serious consideration to what harebrained strategy the investment bankers are currently scheming. One thing is for sure, it will not be in the best interest of Wall Street, Main Street, or any street except for the likes of Goldman Sachs, Citicorp, and the rest of the companies of that ilk.

Which is not to say these fine American investment bankers are breaking the law. They are, in fact, under intense scrutiny by the ever diligent federal government. Okay, now that I think about it, it wouldn’t take a lot to pull the wool over the eyes of the average federal auditor. After all, Bernie bamboozled the same federal auditors into thinking he was in possession of $100 billion and they took his word for it. Call me crazy, but I would like to think I would ask for some audited statement by a reputable accounting firm to back up Old Bernie’s claims. I don’t think there are many federal auditors that would take my word for it that I claimed I had a  hundred billion I had invested and it was in good hands… and you can trust me on that.

But I digress… the point I am trying to make is a simple one, not extraordinary complicated, and that many of us day traders are having a heyday. Yes, you heard it right, day traders are making money. With all the negative publicity day traders receive it would be shocking to learn that a large number of day traders do quite well. We even do well in stagnant markets.

Why?

We don’t try to predict the market. We actually take what the market offers and bank it. There is a wealth of information and scientific studies that claim that market prediction is an impossibility; and judging from the prediction record of the Federal Reserve and many of our prominent economist as I don’t have too much trouble buying into the theory that market prediction is impossibility. The proof is in the pudding. Yet economists continue to prognosticate, and the Fed continues to print money; and both are quite sure that they are on firm ground when it comes to predicting the future economic events in our country. Such is the life of a carnival worker. To be sure, several of our recent administration economists might well seek employment as pastry chefs in lower class dining establishments. Larry Summers comes to mind. But that’s another story. I suppose a bit of a controversial tonight. Generally speaking, I write articles about the ins and outs of trading theory and chaos theory, but I was feeling a little spunky so I thought I’d have a rip at some of the geniuses behind our current economic dilemma.

Plus, I bought a nice new leather chair today. It’s throne-like with black leather upholstery and I have the illusion of landed gentry. And with that attitude, I will soon be joining a traveling carnival, too.


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Day trading for the week of September 25-29

Day trading for the week of September 25-29

I wouldn’t characterize this week as the most exciting week of trading in stock market, or futures market, history. As a day trader, I am not terribly concerned about the underlying fundamentals in the market. Here at the E-Mini Trading Professor we seek to scalp small portions in market directional movement. But this week was unique in that there were several protracted periods of little or no market directional movement.

It is no simple task to determine the underlying cause of the lack of movement in the market, as there are a wide variety of variables which determine the direction and velocity of the market. But several basic themes can be gleaned from this particular week. Quite simply, it took a reasonably nimble hand at trading to choose trades that were profitable and sound.

Of course, the futures market and the S&P 500 are directly related to the movement and the actual S&P 500, and it is my opinion that the vast majority of investors in the cash market were primarily speculators and not investors. This is not surprising because it is hard to make a case for investors to invest on the long side and any market index. There is a great deal of uncertainty as to the direction of the current market, and we are currently bouncing off several important resistance levels in the cash S&P market. It is my opinion that the general investor has been hesitant for quite some time to commit any substantial sums to longer-term investment in the stock market. Further, we are stuck at intermediate highs, and the continued upward movement of the market is certainly in question.

Of course, October has never been a particularly kind month for stock investors. Whether this phenomenon is self-perpetuating or a natural rhythm of the market is certainly subject to debate, but the fact remains that past Octobers have been unkind to the stock market investors. And investors know this, so it seems they have chosen to stay on the sidelines for a period of time.

From a technical standpoint, the market needs to decide whether to run up to the 1200 mark or retreat back to more manageable levels. As a scalper, I do not have any particular preference as to which direction the market finally decides to move, but it would be profitable if market moves away from the relative holding pattern that we are now experiencing. It is, to say the least, a difficult time to trade as it is typified by unpredictable movement, both to the upside or downside, which are difficult to discern.

In my trading in the trading room, I have chosen to shorten not my stops and profit targets to help ameliorate some of the inexplicable movement the market is now displaying. With speculators dominating the market, the movement is not particularly drastic but it is not unusual to see price movement that is opposite normal expectations.

While I trade primarily on price action, I generally use oscillators and indicators to filter trades for accuracy. On most occasions, my oscillators and indicators have been unreliable and difficult to interpret. On the other hand, using support and resistance has proven to be a reliable technique to chart potential move to the upside or downside. So, as might be expected, I have added importance to support and resistance in my trading.

In summary, the current market is not positioned for taking aggressive trades and most traders would be well served to trade with a conservative mindset and limit the number of trades they initiate to those trades they are very confident with. This takes more self-discipline than most traders are accustomed to exercising, but nonetheless it is essential to stay on the conservative side of his market.


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