Currency Trader Magazine (Jul 2009)

Hi Folks, the July issue of the Currency Trader Magazine is now available. Enjoy!

New Video from Elliott Wave International (EWI)

Appears more people are putting out videos. Here's one from EWI that may interest you.

Deflation is Winning. Are You? The mainstream media couldn't predict the biggest bear market in 100 years; how do you expect them to anticipate what will unfold next? Watch this quick video clip from financial analyst and sought-after speaker Steven Hochberg about why you should challenge the consensus view for inflation. Then access the full 20-minute video, FREE. Deflation is Winning. Are You? Watch the full presentation, FREE. Click Here!

S&P 500 Update July 1st

I'm sorry this video came up late. I mentioned earlier that I don't put up videos using (only) blackbox methodologies, and I still don't. :)

In this video by INO MarketClub, S&P 500 Update July 1st, he does use his trade triangles technology. But watch for how he describes the trend, draws the trendlines, pulls of fibs, and describes how he would possibly address the trade as prices moves.

The video was dated 1 July.... but its still not too late because he's looking at a break of the trendline around 880 before expecting prices to go lower. (so you could possibly go short even without his trade triangle technology).

Now... for me, I used Elliott Waves, and that's how I got my entry at 930 (61.8% retracement on previous 5 waves decline). Hope you enjoy the video and have something to take away from it.

E/Y, G/Y Shorts Closed

Prices have moved significantly after the NFP results were out. So I decided to take profits and close out the positions. My original TP was much further, but after such sharp movements, there's a tendency for a move in the opposite direction. So I decided that I should probably close out the trades and perhaps look for another entry.

If I had larger positions, then I would be looking to close out a portion of the position and let the rest run, perhaps on a trailing stop. But I'm working on half-minilots, the smallest possible for my Saxo miniaccount. So there.... decided to close out the positions for now. (Yes... prices are still dropping somewhat right now, but I've decided to take some profits for now)

So the trades are as follows... all triggered by limit orders last night:

EURJPY
Shorted at 136 (Limit Order)
Closed at 134.84 (Manual)
Profit 116 pips

GBPJPY
Shorted at 159.65 (Limit Order)
Closed at 157.23 (Manual)
Profit 242 pips

SP500
Shorted at 930
Closed at 903.27
Profit $26.27

So its a pretty good trading day. It pays to be patient, and not have itchy fingers. In fact, my itchy fingers caused me some dough last week.

For the closing of this trades.... I struggled somewhat, because my original Take-Profit Levels are further. I just hope I don't end up kicking myself later. :P

Short on GBPJPY and EURJPY

Hi Folks,

Just a quick update. My entry for EURJPY and GBPJPY were trigged last night, and I'm also expecting Equities which usually have a positive correlation with the two pairs to be dropping.

I'm experimenting with the SP500 Index (currently triggered short too) for now and seeing how it goes. First experiment using EW on an Index.

Here are some articles by DailyFX which supports my trade direction.
Yen Crosses: Tops in Place?
DOW Warning: Risk of Sharp Decline Increased

Good luck with your trades!

Five Fatal Flaws of Trading

Five Fatal Flaws of Trading
June 25, 2009

By Jeffrey Kennedy

Close to ninety percent of all traders lose money. The remaining ten percent somehow manage to either break even or even turn a profit – and more importantly, do it consistently. How do they do that?

That's an age-old question. While there is no magic formula, one of Elliott Wave International's senior instructors Jeffrey Kennedy has identified five fundamental flaws that, in his opinion, stop most traders from being consistently successful.

We don't claim to have found The Holy Grail of trading here, but sometimes a single idea can change a person's life. Maybe you'll find one in Jeffrey's take on trading? We sincerely hope so.

The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. For a limited time, Elliott Wave International is offering Jeffrey Kennedy’s report, How
to Use Bar Patterns to Spot Trade Setups, free.

Why Do Traders Lose?

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, 'How do you stop the Hand?' Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw No. 1 – Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.

How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn’t matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint I can give you regarding developing a defined trading methodology is this: If you can’t fit it on the back of a business card, it’s probably too complicated.


Fatal Flaw No. 2 – Lack of Discipline

When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

Fatal Flaw No. 3 – Unrealistic Expectations

Between you and me, nothing makes me angrier than those commercials that say something like, "...$5,000 properly positioned in Natural Gas can give you returns of over $40,000..." Advertisements like this are a disservice to the financial industry as a whole and end up costing uneducated investors a lot more than $5,000. In addition, they help to create the third fatal flaw: Unrealistic Expectations.

Yes, it is possible to experience above-average returns trading your own account. However, it’s difficult to do it without taking on above-average risk. So what is a realistic return to shoot for in your first year as a trader – 50%, 100%, 200%? Whoa, let’s rein in those unrealistic expectations. In my opinion, the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year. If you can manage that, then
in year two, try to beat the Dow or the S&P. These goals may not be flashy but they are realistic, and if you can learn to live with them – and achieve them – you will fend off the Hand.

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For a limited time, Elliott Wave International is offering Jeffrey Kennedy’s report, How to Use Bar Patterns to Spot Trade Setups, free.

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Fatal Flaw No. 4 – Lack of Patience

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement.

So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.

All too often, because trading is inherently exciting (and anything involving money usually is exciting), it’s easy to feel like you’re missing the party if you don’t trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.

How do you overcome this lack of patience? The advice I have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don’t worry about missing an opportunity today, because there will be another one tomorrow, next week and next month ... I promise.

I remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: 'Aim small, miss small.' I offer the same advice in this new context. To aim small requires patience. So be patient, and you’ll miss small."

Fatal Flaw No. 5 – Lack of Money Management

The final fatal flaw to overcome as a trader is a Lack of Money Management, and this topic deserves more than just a few paragraphs, because money management encompasses risk/reward analysis, probability of success and failure, protective stops and so much more. Even so, I would like to address the subject of money management with a focus on risk as a function of portfolio size.

Now the big boys (i.e., the professional traders) tend to limit their risk on any given position to 1% - 3% of their portfolio. If we apply this rule to ourselves, then for every $5,000 we have in our trading account, we can risk only $50-$150 on any given trade. Stocks might be a little different, but a $50 stop in Corn, which is one point, is simply too tight a stop, especially when the 10-day average trading range in Corn recently has been more than 10 points. A more plausible stop might be five points or 10, in which case, depending on what percentage of your total portfolio you want to risk, you would need an account size between $15,000 and $50,000.

Simply put, I believe that many traders begin to trade either under-funded or without sufficient capital in their trading account to trade the markets they choose to trade. And that doesn’t even address the size that they trade (i.e., multiple contracts).

To overcome this fatal flaw, let me expand on the logic from the 'aim small, miss small' movie line. If you have a small trading account, then trade small. You can accomplish this by trading fewer contracts, or trading e-mini contracts or even stocks. Bottom line, on your way to becoming a consistently successful trader, you must realize that one key is longevity.
If your risk on any given position is relatively small, then you can weather the rough spots. Conversely, if you risk 25% of your portfolio on each trade, after four consecutive losers, you’re out all together.

Break the Hand’s Grip

Trading successfully is not easy. It’s hard work ... damn hard. And if anyone leads you to believe otherwise, run the other way, and fast. But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless. To get to that point, though, you must first break the fingers of the Hand that is holding you back and stealing money from your trading account. I can guarantee that if you attend to the five fatal flaws I’ve outlined, you won’t be caught red-handed stealing from your own account.

For more information on trading successfully, visit Elliott Wave International to download Jeffrey Kennedy’s free report, How to Use Bar Patterns to Spot Trade Setups.

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Jeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International (EWI). With more than 15 years of experience as a technical analyst, he writes and edits Futures Junctures, EWI's premier commodity forecasting package.

Trading Education Resources

From time to time I'll share on interesting Trading Educational Resources which are available. You'll see on the right side of the blog that I've added some links to INO.com.

INO is pronounced as "I-KNOW" and it is a traders' resource providing you with various services such as News, Trend Analysis, Web TV (Called INO TV), and even a Market Club that provides trade recommendations.

Now, if you had been following my blog for awhile, you know that I'm not a keen supporter of trade recommendations based on a black-box model. I'm one who needs to know exactly why I'm placing a trade for myself. If however, you are one who is interested in looking at a website who provides such recommendations, you may wish to check out the INO Market Club.

So, what exactly am I recommending here?

I'm recommending the INO Premium and the Market Club (yes, but not because of the trade recommendations).

Here's why.

INO provides INO TV (Free) which is a free educational resource (you need to supply your email). Four free videos are listed at each point of time, and these videos do have educational value. They sometimes do some marketing through that platform as well, which irks me at times. So as a free resource, they are not bad.

Now, if you are willing to spend alittle dough.... I'll like to recommend the INO TV Premium I know this sounds like a sales pitch, but you'll be missing out on some really cool stuff if you ignore this.

As they say, a picture speaks a thousand words, so here's a screenshot of the channels and resources they have available.



They have everything from trading systems to money management to psychology from really big names like Charles Le Beau, Joe DiNapoli, Larry Williams, and even Mark Douglas (Author of Best Selling Book - The Disciplined Trader) in either video, or audio with PDF workbooks. Its such a huge collection that I was like a little boy in a toy shop filled with the latest gadgets! So do yourself a favour, and at least check it out. If its not something you want, then you can always decide not to sign up, or to just stay with the INO TV Free.

Now the Market Club cost more and boast of several other features beyond what INO TV Premium provides. But the key draw for me was the "Trade School" segment which also provided with alot of educational resources. My take on this is.... go for the INO TV first... unless you really are keen on the other features of the Market Club.

Hope you find this review useful! Catch you around, and good luck with your trades!


* Declaration of Interest: I am an affiliate member of INO and will get some benefits out of sign-ups. But that's not the main reason I'm recommending it. Please look though and decide if it is something that you will find beneficial. :)