Secret Trading Tips - page 9
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Waiting Game
waiting
There was no action Thursday. Traders are waiting on Friday’s monthly employment situation report.
The way Chairman Ben has the market cornered, either a better than expected or worse than expected outcome can be spun like cotton candy into a bullish reaction. That is the normal course of business on Fraud Street; however, because the market has gone up almost every day this year without a pullback, traders are looking for a reason to book profits. Although the odds are probably low, it is a possibility to be sure due to the ridiculous Financial Maoism of Chairman Ben.
Market consensus is for job gains of 171,000 and the unemployment rate to fall to 7.8% from 7.9% and that’s a long way from Chairman Ben’s edict that the money printing (read: counterfeiting) shall not stop until the rate is below 6.5% - and surely that is a moving target, to be changed whenever the Chairman feels it necessary. After all, changing his mind is a Chairman’s prerogative.
Bloomberg posted this of the morning report…
Market Consensus before announcement
Nonfarm payroll employment in January continued to grow at a moderate pace, advancing 157,000, following a gain of 196,000 in December and an increase of 247,000 in November. Private payrolls posted a gain of 166,000 in January after increasing 202,000 the month before. Average hourly earnings rose 0.2 percent in January, following a boost of 0.3 percent December. The average workweek held steady at 34.4 hours. Expectations were for 34.5 hours. However, the unemployment rate reversed course a bit, rising to 7.9 percent in January from 7.8 percent the month before.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com
Secret Trading Tip #1
Trade with a Plan – Using a Stop Loss
In my opinion, every trade you consider should be laid out ahead of time with a roadmap. A complete map should have an “off ramp” or a place where it makes sense to enter the market. It should also have exits for your destination (profits) as well as off ramps for emergency exits. This part of your plan will likely include stop orders.
Stop orders placed to potentially close an open position are called stop loss orders
A stop order is a contingency order. It is triggered only comes into play at the price level specified in the order. In other words if the market never trades at that price, the order will never become active. The caveat to this is the fact that the market can sometimes gap through your price, at which point the order would be executed at the best possible price. This unfortunately has the tendency to open up the trade to the possibility of getting filled at a far worse price than the one specified in the stop order. So, in summary, a stop loss order specifies a price level at a point and beyond where your order will be triggered to a market order.
Stop loss orders are like big signals where you will pull out of trade
Based on how they function, stop orders have very specific placements. Buy stop orders are placed above the current market price. Sell stop orders are placed below the current market price.
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
CHART COURTESY OF GECKO SOFTWARE.
They work when the market trades at or through the specified stop price level. Once the price is hit, it becomes a market order and is executed at the best price available. Here is an example of a stop loss for an open long position (one that was initiated by buying a contract):
Sell one December e-mini S&P futures contract at 1335.00 stop.
The mechanics of this trade would work in a straightforward way. It would have to be placed below the price level the market is trading at so for this example, assume the market is trading at 1338.00. Normally, I recommend placing a stop loss order 3 points or less from the current market price. So if a long market position was initiated at 1338.00, this stop was placed. If the market starts to trade lower and hits 1335.00, then the sell stop would be triggered and the order would be filled as a sell at the market.
If the market price gaps lower, say 1330.00, the stop loss would still be triggered and the order would be executed at the best possible price. That might mean any price at or below the 1330.00 point. You can see how the gap is something to be aware of.
The same concept applies to a buy stop order. Consider the same example as a buy stop.
Buy one December e-mini S&P futures at 1335.00 stop.
The order would have to be placed above current market price, so keeping with the idea of 3 points or less, assume the market is trading at 1332.00. If the market trades higher, against your open short position (a trade initiated by selling a contract), the order would be triggered once it touches or moves higher than 1335.00.
Traders can use a stop loss order and trail it behind an open position as the market moves in their favor
Stop loss orders don’t go away if the market is moving in your favor. You can trail them to keep them within 3 points or less of the price level the market is trading at. In this way, you can actually try to use your stop loss to protect unrealized profits on an open trade. As long as the position does not get closed by getting filled on your limit order (Secret #2), you could keep rolling or trailing the stop loss order. Additionally, if you close out your position in a way other than through your stop order, don't forget to cancel your stop.
In this way, stop loss orders remain a key component of any trading plan. They are like a safety net, and they can help you try to keep emotion out of your trade. Knowing when to cut your losses and exit a trade can help traders keep things in perspective. Too often people can fall into a trap of holding an open trade that is moving against them, hoping that the market will turn back in their favor. Making a roadmap and sticking to it can help you avoid this pitfall.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com
Secret Trading Tip #15
Trailing Stops
The topic of trailing stops comes up on occasion in my Virtual Trading Room. They can often cause some confusion, so let’s take a bit of time to clarify what constitutes a trailing stop and how you can use it in futures trading..
Trailing stops are actually stop loss orders that you move according to certain parameters in your trading plan.
Why Move Stop Loss Orders?
Stop loss orders are stop orders that are placed at levels where you would exit the trade. That exit point could be based on risk tolerance levels, moving averages, or key technical levels in the market. However you select your stop loss price point, it is usually in a place where the market is moving against an open position.
That point can become obsolete or change when the market is moving in favor of your open position. That means that there can be market movement that would necessitate a re-evaluation or move for your stop loss.
Look at it this way:
If you have a long e-mini S&P 500 position open, your stop loss would be below current market value. Let’s say that when you put the position on, you based your stop loss placement on a point value below entry. Using the Trading Advantage method, the stop should be no more than 3 points away. If the market moves higher, your stop loss would be further from the current price, and it might make sense to move it higher, perhaps to your breakeven level or even up to 3 points below current market price levels. If the market continues to move higher, your stop loss could be re-adjusted higher to keep it within those 3 points.
In this way, you have the chance to try to lock in unrealized gains on an open position. Prices can still gap through your stop price level, so it isn’t a perfect guarantee, but it does provide a level of emotional insurance, and they are another handy tool to use.
Does it cost money to keep replacing an order?
No. Stop loss orders are just instructions for an action to take if a market reaches a certain level. You can cancel and replace them as many times as you want or need to. Commissions and fees are only charged for executed transactions.
The trick to trailing stops is to make sure that you are cancelling and replacing the stop loss order every time and not accidentally placing a new order.
Trailing stop loss example:
*PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Chart courtesy of Gecko Software.
One type of trailing stop we use in the Virtual Trading Room is the momentum stop, which is a little more advanced. This trailing stop is automatically calculated by an algorithm in our trading software that measures the velocity of the market as well as the average true range of each bar. Once each bar closes, the algorithm instantly calculates a new trailing stop that helps us both protect unrealized profits and try to protect our equity if the trade results in a loss.
Whichever trailing stop placement method you choose doesn't really matter because all of them will allow your decision making to be potentially free from emotional influences. You are keeping your exit fluid, moving it as market forces move prices.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com
Indecision
If I had to describe today’s market in one word it would be: indecision. Although the market closed lower, it was mostly indecisive. There were many rumors concerning the Cypress situation – all indecisive in the end.
While the news/decision for Cyprus as a whole may be indecisive as of yet, the reality for its citizens is final: there is little-to-no-money in the ATMs. The news wires carried the following during the day…
*Cyprus Popular Bank announces restrictions on ATM withdrawal to EUR 260 per customer per day
*CYPRUS POP SETS DAILY LIMIT OF EU260 ON WITHDRAWALS:KATHIMERINI
In order to keep the deal alive, the Eurozone nannycrats came up with a new idea: allow small depositors to keep their money, while large depositors get massively screwed by 40%. Naturally, bondholders of Cyprus banks would lose NOTHING.
It’s almost Friday and the EU has said that Cyprus has until sometime Monday to decide if savers should get raped before the speculators who hold Cypriot-bank bonds. Another vote is scheduled for Friday (will it be cancelled?) so as to not upset the almighty stock market over a weekend.
Will the new vote pass? Or will the first country in the doomed Euro exit its slavery? I suppose the answer lies in the question: Have the appropriate funds been deposited in private Swiss bank accounts for those voting politicians in Cyprus? If so, the vote is to fold like a lawn chair in favor of the Eurozone nannycrats.
In other news – there were reports of riots in Cyprus today at many bankrupt banks. Surely this will be ignored by the so-called political elite.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com
Indecision
Who’s Next?
venus
When the US housing market was starting to fall apart Ben Bernanke made a now rather famous statement because he was so wrong. Regarding the situation he said on March 28, 2007 “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
On which planet of the solar system it was contained, he did not mention.
When Benron realized he didn’t know any more than anyone else, he is human after all, the man turned himself into Chairman MaoNanke – regulating all financial assets as he sees fit.
And this is where I think the nannycrat fools are in Europe. They make countless statements that all is well…their problems are “contained”…and yet the contagion spreads like a metastasized cancer. If it’s contained, how did Cyprus fall? How did its banks pass the so-called stress tests? How? Because they are all liars.
And that then begs the question: Who is next?
The answer may be Slovenia. Its leaders are exclaiming “Slovenia won’t need aid. We can do this on our own.” And when they say that, given that all politicians across the planet are pathological liars, they must be in big trouble.
But the old players are back in the spotlight as well. The Greek stock market has plunged 20%, putting it in bear market territory, in one month. Greek bonds are also at 3-month lows.
Speaking of liars, Spain didn’t quite tell the whole truth about its budget deficit. From Bloomberg: “The Spanish government said its 2012 budget deficit will be bigger than first estimated after the European Union requested changes in how tax claims are computed. The budget shortfall excluding aid to the banking sector was 6.98 percent of gross domestic product last year, more than the 6.74 percent predicted on Feb. 28, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today. That compares with 8.96 percent in 2011.” And “Spain is seeking an extension from other euro-region governments to reorder its public finances as Prime Minister Mariano Rajoy says output may shrink more in 2013 than the 0.5 percent he initially predicted. That’s a third of the contraction forecast by the International Monetary Fund. Spain is due to submit budget plans through 2014 to the European Commission next month.”
Expect more flare-ups.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com
Pomo Schedule
Bernanke_pours
Everyone at Trading Advantage hopes you had a great holiday, with plenty of relaxation and good times with the family. It was with family over this extended weekend that generated this post. When discussing the markets (which I can never avoid) the Fed came up, but specifically how the Fed is “supporting” the markets via POMO.
POMO is the Fed’s acronym for Permanent Open Market Operations. From the FRBNYs website we read its definition “The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).” To be blunt, this is how the Fed rigs interest rates and all other markets by extension (and by design).
Unfortunately, my relative desperately clings to fantasy and refuses to believe that the Fed is rigging the markets. When given a choice between the red and blue pills, he always chooses the blue pill so that he can remain in the fabricated reality of the Financial Matrix. Besides, other beliefs like the Easter Bunny must still be fun too.
When I told him that the Fed is buying $85 billion per month of US Treasuries, he thought I was making up huge numbers to simply make an anti-Fed point. He wanted more details. Of course, I wasn’t making anything up so I plucked my trusty smartphone from my pocket and showed him the chart.
Remember, as I told him, these are “open market operations.” The Fed is hiding nothing. There is a schedule to rig the markets.
This is a light month because the FRBNY trading desk only plans to buy $45 billion in April. If the market drops, will the Fed buy $125 billion ($85b + $40b)?
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Best Trades to you,
Larry Levin
Founder & President- Trading Advantage
TradingAdvantage.com