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  1. Understanding support and resistance levels is an extremely important technical skill in any market, and I think it's absolutely critical if you plan on trading the S&P E-Mini market. Professional Floor Traders are aware of an entire range of major and minor support and resistance levels before the market opens each day. They also know how to calculate new levels as the trading day progresses. Support is the price area for a potential bottom where the market will be buoyed up as buyers come in seeing potential value. Resistance is the price spot where the market just can't seem to move any higher as selling comes in every time it hits that level. Knowing those points where the market may turn gives you an effective road map to guide you through the day. Most traders calculate support and resistance levels incorrectly, and to make their job even harder, they generally don't know how to trade around them. Many traders will use an old high or an old low and assume they've found support or resistance. That just doesn't work. Think about it for a moment. If the market always stopped at old highs we could never have an up trending market, and if the market always stopped at old lows we couldn't have a down trending market. These Are the Same Numbers I (And Other Pro Traders) Use Every Morning In my training programs I like to focus some attention on the information needed to correctly calculate support and resistance levels before the open each day. These are the same numbers I and many other floor traders utilize each morning. Can you imagine the "edge" this information gives you for planning your possible trades? Let's face it; all traders likely want to catch the big trending days, days when the S&P moves 15 or 20 points without looking back. Unfortunately those big trending days just don't happen that often. Most days it appears the market doesn't trend very much in either direction, instead it will move between known support and resistance levels. Knowing the location of these price levels is important, but knowing how to trade around them can be the difference between success and failure. One of the simplest ways to do technical analysis is by using the pivot points. This method has been around for years and is described below: A pivot point is approximately the center of today's price range. From there, I calculate three different sets of highs and lows. These pivots are then potential support and resistance, when prices have gone outside the Value Area. Pivot Point = (High + Low + Close) /3 #1 high pivot = Pivot Point + (Pivot Point - Low) #1 low pivot = Pivot Point - (High - Pivot Point) #2 high pivot = Pivot Point + 2 (Pivot Point - Low) #2 low pivot = Pivot Point - 2 (High - Pivot Point) #3 high pivot = High + 2 (Pivot Point - Low) #3 low pivot = Low - 2 (High - Pivot Point) This is easy to do by hand every day, after the market closes, so you are ready for the next trading day Most trading platforms automatically calculate these numbers for your easy retrieval and use. I do not use the pivot number for trading; I only use it to determine the "sets" of pivots. I also do not use the #1 high pivot as support, if the market opens or trades above it. I use them as "envelopes". Let's say the market opens above the #1 high, I'll look at the #1 low for support and the #2 high for resistance. In my own experience, I have noticed that the #1 pivots work the best over time. If the market gaps over the #1 pivot high, you'll have a #2 and #3 to work with. You can either use limit orders to buy or sell at these pivots and use a money stop, or wait for the pivot to "hold" the market. If the pivot "holds" the market, trade an engulfment, doji-star, tail or whatever you see, which is a more conservative entry. Best Trades to you, Larry Levin
  2. Candlestick charts have all kinds of potential patterns that technicians are watchful for. One of the easiest to spot is an engulfing pattern. This set-up consists of two candlesticks, one of which is “engulfing” the previous one. That means the body of the second candlestick is longer than the first one. It doesn’t have to extend beyond the wicks of that first candlestick, just the real body. period of time. Spot an engulfing candlestick and you might be seeing a reversal signal When the real body of a second candlestick extends beyond the previous one, the participants are behaving in a particular way. The candlestick is bigger because some combination of opening price and buying or selling pressure is making it bigger. These combinations can tell you if there is potential for an existing trend to change. Candlestick fans are watching for an engulfing candlestick of a different color The reversals are spotted when there is a hollow candlestick engulfing a filled one or vice versa (red and green if you are using a chart program with colors.) Don’t get caught up in anything involving a doji – those are pretty easy to engulf. If the market was in an apparent uptrend and a hollow (or green) candlestick is engulfed by a filled (or red) one, this might be a signal of a bearish reversal. The second candlestick shows that the market opened above the prior closing price and then selling pressure came in and the market was pushed below the prior opening price. Finding a hollow (or green) candlestick engulfing a filled (or red) one could be a bullish reversal signal in an established downtrend. In this case, the hollow candlestick would show that the session opened at a price below the prior close, where the real body starts below the filled candlestick from the previous session. Buying ensued and the market price moved through and above the prior opening price. Engulfing patterns can be easy to spot – look for larger candlestick bodies to indicate firmer potential signals Remember, watch for the real body of a second candlestick to engulf the first. If it is a contrary to the prevailing trend, you might have a reversal signal on your hands. Look at the buying or selling pressure as an indication of market direction. As with all technical chart patterns, keep an eye on the following trading sessions to confirm the move. Watch for further weakness after a bearish engulfing pattern or continuing strength on a bullish engulfing pattern. Larry Levin President & Founder
  3. Monday was another Ramp & Camp day: it ramped higher on very low volume and set up a camp site. The volatility was ridiculously low – again. For the vast majority of the session, the ES traded in a scant 3.50 point range despite being up over 35.00 points. All of it happened on Globex. Above is a 10-min chart of the putrid action. What caused the massive gap open that eventually stayed still throughout the entire day? More hopium – of course. Late Sunday evening there were reports that Germany would join five other AAA-rated countries to issue common bonds to fund more profligate spending. Odd thing is – Germany DENIED this rumor quickly. Another rumor Sunday evening was that the IMF had a EUR 600bln loan for Italy ready to go, if things got worse in that country. Odd thing is – the IMF DENIED this rather quickly as well. No matter – hopium is hopium is hopium…and who needs anything else, especially when the market is technically oversold and ready to bounce. Funny how these BS rumors always hit the tape when a short-covering pop is immanent (read: it’s a fix). What was ignored in favor of the known FALSE aforementioned rumors? Moody’s believes “The probability of multiple defaults (in addition to Greece's private sector involvement programme) by euro area countries is no longer negligible.” The morning housing data showed that the average new home price drops to the lowest level since 2003. A judge tells ****ibank & the SEC that their prepackaged “deal” over fraudulent CDO/MBS sales is bogus and will go to trial. There is a good chance the next judgment will be close to $500million. Will actual justice spread? Italy was downgraded by Egan Jones ratings agency. After the close, Fitch moved the USA’s rating outlook to “negative.” After the close, reports surfaced that S&P may move France’s rating outlook to “negative” within 10 days. Despite all of this, Hopium prevails. Everything before the open and after the close has been ignored in favor of rumors that were already (read: immediately) denied. Isn’t a government controlled market just awesome? Trade well and follow the trend, not the so-called “experts.” Larry Levin President & Founder- Trading Advantage
  4. Yesterday I said “The reason why I am mentioning this again is that I believe it will become a bigger story this coming week. Oh sure, the European insolvency drama will continue and could still be a market mover, but I think the media will focus a little more on the ‘group of idiots.’ Pardon, I meant ‘supercommittee’ and its lack of agreement.” It became a big story this morning when investors sold off stocks in anticipation of a further debt downgrade from one of the other ratings agencies. The Dow was down almost -350 points at its low. For those you who said S&P was crazy to downgrade the USSA because of its non-stop profligate spending and a dysfunctional Congress (yeah, we’re looking at you “old-codger-of-Omaha”) the staff of Standard & Poor’s would like to say something: WE TOLD YOU SO! By my count this is four attempts to slash a few bucks from the TRILLIONS the government spends every year. Let’s see what we have here… 1. Remember the Bowles and Simpson commission? The National Commission of Fiscal Responsibility and Reform recommended cutting $4 trillion dollars over 10-years. Result? IGNORED. 2. Pete Domenici and Alice Rivlin recommended $6 trillion in cuts in their Debt Reduction Task Force. They were IGNORED. 3. Apparently these numbers were too large for our dysfunctional Congress so the next attempt by “The Gang of Six” at that point recommended the lowest cut of $3.5 trillion and was…IGNORED. 4. S&P cut the debt rating of the USSA. 5. And now the “stupidcommittee” pardon, “supercommittee” can’t even cut $1.5 billion over 10-years. DYSFUNTIONAL, indeed. But don’t worry, “this time” the so-called cuts will happen anyway. There are automatic cuts built in, just in case the so-called supercommittee failed to meet the deadline, which it did. So the cuts are guaranteed…yeeaaaaah, sure they are. Would you like to know just how dysfunctional Congress really is? It was reported today that Senator John McCain and Congresswoman Maxine Waters are both working on ways to STOP the automatic cuts. Dys-#!@&*$-functional, indeed! Trade well and follow the trend, not the so-called “experts.” _________________ Larry Levin President & Founder - Trading Advantage
  5. How often have you looked at a chart and tried to determine whether or not the market is really trending? How many times have you been fooled by your Stochastics or RSI indicators? How many times have you sold because your oscillators were screaming overbought then watched the market dip a little and then continue higher, stopping you out for another loss? One of the most important things you are probably trying to figure out with any given market is if it is in a trend, and in which direction that trend is moving. Find the trend and make friends with it Swimming upstream is difficult, and that kind of battle is probably why you’ll often hear traders say, “The trend is your friend.” But spotting a real trend can be tricky, especially for first time traders and chart observers. You don’t need really fancy calculations or trading software to spot a trend in a market, and if you find it, don’t fight it. Guess who bought the dip? That's right, the floor traders and the other professionals If a market is really trending, there will always be reactions against the prevailing trend. Those are the signals most floor traders love. They know that many investors in the general public will fall for the "fade" nearly every time. So how do you know whether or not what you are seeing is a real trending market or not? The basics are very simple. A market in an uptrend will likely have higher highs and higher lows. The opposite is true for a downtrend. Lower highs and lower lows tell you when the market is in a downtrend. You never want to go against these situations. IMPORTANT TRADING RULES: 1) We never get long or buy in a downtrending market. 2) We never sell or go short in an uptrending market. It's just like stepping in front of a freight train. A market on a move higher will attract new buyers and selling forces will help establish higher highs. When the price dips, more buyers will come in on what they perceive as a value entry point, delivering those higher lows. On the downside, selling pressure will cause lower lows and any move above those results in more sales, topping off those lower highs. Find support and resistance and find trading opportunities Once you have determined the overall trend, you can look for support and resistance points. Knowing these price levels can help you follow the trend, buying on dips in a market that might be trending higher or selling on pops when the prevailing trend is likely lower. It doesn't get any better than that! Best trades to you, Larry Levin
  6. Last week I gave the outlook for the Non-Farm Payroll data “The consensus for Friday’s NFP is for 90,000 job growth, with an unchanged unemployment rate of 9.1%.” That data is a matter of record now so let’s have a look. 1. US Payrolls +80,000 2. Official Unemployment Rate 9.0% 3. Unofficial Unemployment Rate (U-6) is 16.2% 4. Participation Rate steady at 64.2% 5. Household Survey rose by 277,000 6. Unemployment fell by 95,000 7. Average Weekly Workweek was unchanged 34.3 hours 8. Average Private Hourly Earnings rose 5 Cents to $23.19 9. Government employment decreased by 24,000 10. Major revisions come in bullish When released last Friday, most of the enthusiastic talk centered on the revisions made to the two prior reports. Bloomberg said the following The headline number for October payrolls was a little disappointing but upward revisions were more than offsetting. Payroll jobs in October posted a gain of 80,000 after rising a revised 158,000 in September (originally 103,000) and increased a revised 104,000 in August (previously 57,000). Market expectations were for a 90,000 boost for the latest month. Revisions for August and September were up net 102,000. As in recent months, greater strength was seen in private nonfarm payrolls which advanced 104,000, following a 191,000 rise in September and a 72,000 increase in August. The October increase was lower than the market median forecast for a 120,000 increase. The revisions are encouraging and hopefully this will soon lead to strong HEADLINE numbers. Trade well and follow the trend, not the so-called “experts.” --------------- Larry Levin President & Founder- Trading Advantage
  7. As you know, MF Global has gone bust thanks to outrageous bets on worthless sovereign debt. But as you will read, it wasn’t the sovereign debt alone but how MF Global treated these bets via accounting shenanigans. Accounting gimmicks…it is so often accounting gimmicks. The following is a great article, by way of ZeroHedge, of the accounting scams pulled by so many on Fraud Street but most recently by MF Global. Submitted by Jeff Snider, President & CIO of Atlantic Capital Management MF Global Shines A Light On Monetarism's Incapacity To Enhance The Real Economy The temptation to compare any financial institution’s failure to those that preceded the 2008 crisis and panic are reasonable. It is easy to classify MF Global as 2011’s “Lehman” event, just as it was to use the same term to describe Dexia a few weeks ago. The use of the term “this year’s Lehman” is somewhat misplaced simply because its users are looking for an event that kicks off another crisis or panic. Instead of using “Lehman” to describe a potential inflection point that propels the crisis into panic, it might be better to see MF Global as AIG. The comparison to AIG is not to say that MF Global was as interconnected, that its failure will be as devastating, or that it is the straw that breaks the European camel’s back. The urge to see the past in the present is historically valid, but it will never be exactly alike (Mark Twain had this right). Rather I think the comparison is useful in that AIG taught the wider world what was really rotten at the core of modern finance, namely hidden risks that were shockingly existential. MF Global’s failure importantly shows that none of the lessons have been heeded in the days since, providing a somewhat unique window into the real dangers that still lurk hidden in the shadows. More than that, though, MF Global demonstrates an obvious shortcoming of the financial system as it relates to the real economy. ZeroHedge posted the bankruptcy affidavit of MF Global’s President and Chief Operating Officer Bradley I. Abelow, drawing attention to Section E, item 33 on page 13. Mr. Abelow makes the following statement under oath: “On September 1, 2011, MF Holdings announced that FINRA informed it that its regulated U.S. operating subsidiary, MFGI, was required to modify its capital treatment of certain repurchase transactions to maturity collateralized with European sovereign debt and thus increase its required net capital pursuant to SEC Rule 15c3-1.” [emphasis added] The transaction in question was a “repo-to-maturity” financing deal, collateralized with the troubled sovereign European debt that everyone has been talking about in the past few days. What is particularly striking about this is that a “repo-to-maturity” deal is accounted for as a sale, meaning that what is essentially an ongoing collateralized loan is, surprise, hidden off the balance sheet. Maddeningly, MF Global likely booked a profit up front at the transaction’s consummation using obviously faulty mathematical expressions of those “reasonable” expectations of profit, thus avoiding the need to post any liability to the balance sheet. This makes a lot of sense, then, in why FINRA “demanded” it change its capital treatment of the transaction. Though it was “properly” accounted for according to convention, the risks of collateralizing a loan with questionable debt means that MF Global has ongoing liquidity risk attached to it. As the value of the European debt collateral is questioned, or falls, the lender/cash owner counterparty will ask for additional collateral posting as it applies a stricter haircut to that original, troubled collateral. So, even though this transaction has fully cleared MF Global’s books, the company is still on the hook should it be required to post additional collateral or cash (which ended up with the company in bankruptcy, just like AIG). The stink here is that this is not an isolated case of cheating (aside from MF Global’s use of client funds). It is a pervasive shadow element to the modern financial system, fully allowed by accounting conventions and regulators. Just like AIG, MF Global was not brought down by bad debt per se, it was brought down by the hidden liquidity risk of the deterioration of off balance sheet arrangements that were allowed by accounting standards. The fact that it was classified as a sale was completely inappropriate in terms of describing the overall liquidity risk of the company, as FINRA belatedly recognized. MF Global was expressing a bet that it could earn a spread, essentially risk free, on the rate it paid on the repo transaction (the lowest borrowing rate around) and the interest it received on the Euro sovereigns (among the highest rates of the sovereign class), all the while counting on the European politicians and the ECB to provide enough “support” to maintain a relatively constant debt price in order to fool the marketplace into complacency about real risks. So the risk hidden but embedded within the transaction appears long before there is a default, hitting the company once the repo counterparty devalues the collateral (the market was apparently not fooled enough by the ECB’s attempts at price stability). This is the essential financial misrepresentation of the age. Repo accounting is responsible for so much hidden risk, yet it has become central to the ongoing survival of the system as it is currently constituted. The pliability of how the system is allowed to “book” and account for risk is certainly the driving force making repos so vital to modern banking. For instance, a gold or silver lease arrangement is essentially the same as a repo-to-maturity transaction, yet it is accounted for in exactly the opposite way. A gold lease is really a sale transaction since the physical metal is literally removed from the custody of the gold owner, yet it is accounted for as a collateralized loan where the gold remains on the owner’s books as if it is really there (since it technically involves a repurchase agreement on the back end, even though these deals are simply rolled over in perpetuity and the repurchase never takes place, nor is it intended to). Both gold leasing and the repo-to-maturity transaction are forms of collateralized loans, yet they receive far different treatment so that they accomplish exactly what the banks want to accomplish, which is disguising the real nature of each transaction. The gold lease presents risks in that metal may not be where everyone thinks it is, and the sale treatment of the repo-to-maturity removes haircut and liquidity risks from what are supposed to be transparent statements of condition. That is why this system has to change at some point. It is exactly designed to be misleading, and the reason is so very simple. In any fractional system there will be a desire to amplify that fraction to the maximum degree. But in doing so, participants recognize that the process of maximization entails creating negative human emotions and perceptions since history is not really that kind to this manner of fractionalization. So the system has institutionalized, abetted by the very regulators that are supposed to cap fractions and leverage, these methodologies of hiding just how much financial entities have engaged in maximizing themselves under the cover of mathematical precision. Trillions in derivatives are no problem because there are powerful and elegant equations to net and hedge them. Without any sort of exogenous anchor to credit production and banking, risks are theoretically nearly infinite (since the slightest disruption to expected haircuts renders firms utterly bankrupt!), while at the same time there are multiple avenues for misdirection and disguising those realities. The Panic of 2008 was supposed to correct these excesses and remedy the fact that risks have not been accurately priced for decades. Yet the system has resisted every effort, simply settling for redefining the appearance of safety yet again. Somewhere in that mathematical pursuit of maximum fractions, the very goal of finance changed, as if traditional banking was no longer sufficient to support the pursuit’s ever-growing ambitions. So the financial economy has broken away from the real economy, using the ironic cover story of enhancing price discovery to the process of intermediation – complexity is good! Intermediation is supposed to be about matching the wider (real) pool of savings to worthwhile economic projects that have a real, productive impact on the real economy. MF Global’s repo-to-maturity transaction cannot be fairly classified as real intermediation since the firm knowingly advanced credit to an economically unfeasible obligor with the expectation that the price would never reflect that reality (how’s that for enhancing price discovery). This crystallizes, I believe, just how far the financial system has moved away from real intermediation and reflects the biggest part of the real problems in the real economy – money is no longer productive in economic terms and has not been for decades. The Occupy Wall Street crowd sees this as a problem with capitalism. I believe that they are correct in their target, but wrong in their diagnosis. This is not a problem of capitalism since Wall Street is a practitioner of monetarism. A real capitalist system works through real intermediation creating positive opportunities for productive enterprises (scarce money is actually vital here). Our current system of repo-to-maturity and gold leasing is nothing but empty monetarism’s habit of regularly forcing the circulation of empty paper. And when the system begins to doubt itself, as it did in 2008, the answer is always about finding a way to restart the fractional maximization process yet again, which means disguising the real risks inherent to that process. There is no real mystery as to why prices and values have seen such a divergence, and why that is a big problem to a system that depends on appearances. The fact that money is disconnected from the real economy never enters the consciousness of monetarists since money is always the answer. But make no mistake; the primary reasons for this global malaise are that money has lost its productive capacity and its proper place as a tool within the system, not as the ultimate object of that system. MF Global’s failure is an apt demonstration of just how far modern finance has strayed, just as AIG was three years ago. Trade well and follow the trend, not the so-called “experts.” Best Trade To You, Larry Levin Founder & President of Trading AdvantageTM
  8. 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 Larry Levin
  9. Once again the markets experienced an early updraft due to short covering that was followed by yet another preposterous Hopium explosion. One more media source – The Guardian – broke a story that claimed the bankers “get out of jail” fund (the EFSF) would be leverage to 2-TRILLION Euros. And hey, as long as the bankers don’t have to pay for their bad loans, why should anyone care that the innocent tax payer will have to pay for it? Let them eat iPads! The S&P500 went ape$#it - straight up to 1230.00. However, there were a few problems with this story – like, it wasn’t true! A long article on Zero Hedge explains why the math simply doesn’t add up and can be read in its entirety here http://www.zerohedge.com/...e-it-not-bazooka-pea-sho Italy and Spain together have just under €2.5 trillion worth of general government debt outstanding. Tradable Spanish and Italian sovereign debt alone amounts to €2.1 trillion. Adding Greece, Ireland and Portugal raises general government debt to €3.1 trillion and tradable government debt to €2.6 trillion. Adding Belgium would raise these totals to €3.5 trillion and €2.9 trillion. In the perhaps unlikely case that France would need sovereign debt insurance, targeting the stocks rather than the flows would require taking care of €5.1 trillion of gross sovereign debt or €4.3 trillion of tradable government debt. These numbers are beyond the size of even the most optimistic estimates of the most audacious of rescue umbrellas. …We therefore are sceptical that, if there is a reasonable expectation that the recovery rate following a sovereign default in the Euro Area could be as little as 60 percent or 50 percent, that the markets would be happy to fund these sovereigns at sustainable interest rates to the sovereigns, with just a 20 percent first-loss rate, even if this insurance were granted free of charge. A 40 or even 50 percent first-loss rate might well be required. And that would reduce the amount of new issuance that could be funded with an EFSF insurance pot of, say, €300 bn at most to just €750bn or even €600bn. That would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter. But that wasn’t all - France DENIED the story outright! According to Dow Jones newswire, French government sources said a 2-trillion Euro EFSF bailout fund was “totally wrong” and “simplistic.” But wait, there’s more! After the close, AAPL shocked the markets by missing its earnings estimate for the first time in four years. And the ratings agencies aren’t finished yet: Moody’s downgraded Spain’s debt by TWO notches. Given that The Guardian story is false (according to France itself) and if it were true wouldn’t even be workable…and AAPL earnings were off the mark…AND Spain was downgraded again…the ES futures have already taken back all of the ill-gotten gains, right? Not on your life! As I write this, the ES is only down 2-points, or 8 crummy ticks, despite the aforementioned truth. Boo-ya baby – Hopium is a powerful drug. Trade well and follow the trend, not the so-called “experts.” Best Trade To You, Larry Levin, President & Founder- Trading Advantage
  10. A friend of mine in the pit had been having a rough time lately when he asked me a typical question among us traders - How do I come back from a loss? Since he had been having a "rough patch" and not just one bad trade, I gave him the following advice that is to be used over a period of time. First I asked him, "What does your trading journal look like - or maybe you don’t have one?" He didn’t think it was necessary, which was his first mistake. It is critical to keep a trading journal. In my journal I ask myself everyday "Did I follow my trading plan properly? Did I do anything wrong and if so, why?" If I did follow my plan correctly but I lost money, I am not hard on myself. Sometimes this happens! If I didn’t follow my rules but still made money, however, that’s a problem. I highlight these days so I never repeat this fatal flaw. One of the worst things you can do is ignore your rules and make money, because then you feel that "winging it" is a good plan. It is not. If this happens, you have to ask yourself;''Why didn’t I follow my rules?"Was it lack of confidence in the system? Fear? Or did my ego want to be the hero that sold the high?" If you lack confidence in a system, paper-trade it religiously and keep a massive amount of statistics on the outcomes. Be honest with each trade and if the results are good, immediately ban all second-guesses. If you are playing blackjack and the dealer has a six showing while you were dealt a ten & a nine for nineteen, would you HIT IT because "maybe this time the dealer won’t bust!?" Of course you wouldn’t! You know that the long-term outcome of that decision would be certain disaster. It is the same with trading: don’t question a trade if the statistics show it’s a winner over the long term. Fear also exists when a trader doesn’t believe in his system yet. Or it may just be the fear of being wrong, which is another ego-based problem. You have to let go of being right. Trading is about probabilities and making money; not about being right or wrong. I’ve found that traders who used ego-based decisions to mess with their system or break their rules added little to no value to their trading. In fact it almost always hurts more than it helps. Trading for ego satisfaction is not a good idea, because your ego risks getting damaged during a rough trading patch. I like to go back and look at my trades over the last week and last month, to see how they performed. Am I repeating my mistakes? If I bought or sold too soon, I want to find out why. Be honest, and ask good questions: "What worked?What will I do differently next time?What was I feeling when I ignored that trade?" Keep notes on trades you liked but didn’t make.What held you back? Do you notice any patterns causing you to miss opportunities? FIX THEM! My friend listened intently and took notes. He will be a better trader for it. Best trades to you, Larry Levin
  11. The market exploded Monday on the nationalization news of Dexia, no additional sovereign downgrades (but that hasn’t mattered recently anyway), and an announcement by Merkel & Sorkozy that they have, in essence, a “plan” to “create a plan” in the near future. When asked about the details, Sarkozy said “It’s too early for details…” And with the absence of anything concrete, but lots of Hopium to go around, the stock indices blasted higher with the Dow closing up over 300 points. To be clear: there is NO PLAN to do anything, but they plan on having a plan “real soon, we promise (this time).” Moreover, there are NO DETAILS OF WHAT THEY WILL EVEN DISCUSS! Explode indeed; after all, the banking mafia won’t have to clean up Dexia or anything touching Dexia as well as Greece, Ireland, Portugal, Spain, and Italy. Oh no! That’s for the saps that pay taxes. So on and on it goes…where it stops nobody knows. But wait a second here; could it actually stop with Slovakia? All of the countries in the Euro need to ratify the “bailout the banking mafia (EFSF) fund” and the only two that haven’t ratified it yet are Slovakia and Malta. Who wants to bet, despite it written into the treaties that ALL countries must ratify something this major that “this time” the details of the treaty just won’t matter. In the end, can the happiness and bonuses of the banking mafia be held up by Malta and Slovakia? “Meh, just ignore them and the rules” will be uttered by Sarkozy & Merkel. In der Spiegel we read about the possible cog in the wheel: Slovakia. The full article can be read here http://www.spiegel.de/int...pe/0,1518,790577,00.html Richard Sulik, 43, is an economist specializing in tax policy, the speaker of the Slovak parliament and head of the Freedom and Solidarity (SaS) party, a minor party in the country's four-party coalition government. He lived and studied in Germany for over 10 years before returning to his homeland in 1991. Sulik has been a vociferous critic of aid packages to Greece and of the expansion of the euro backstop fund, the European Financial Stability Facility (EFSF). As an adviser to the Slovak minister of finance, Sulik played a decisive role in the introduction of a 19 percent "flat tax" on incomes, which led investors to flock to the country. SPIEGEL ONLINE: Mr. Sulik, do you want to go down in European Union history as the man who destroyed the euro? Richard Sulik : No. Where did you get that idea? SPIEGEL ONLINE: Slovakia has yet to approve the expansion of the euro backstop fund, the European Financial Stability Facility (EFSF), because your Freedom and Solidarity (SaS) party is blocking the reform. If a majority of Slovak parliamentarians don't support the EFSF expansion, it could ultimately mean the end of the common currency. Sulik: The opposite is actually the case. The greatest threat to the euro is the bailout fund itself. SPIEGEL ONLINE: How so? Sulik: It's an attempt to use fresh debt to solve the debt crisis. That will never work. SPIEGEL ONLINE: Slovakia's parliament is scheduled to vote on the bailout fund expansion on Oct. 11. How do you predict the vote will turn out? Sulik: It's still open. The ruling coalition is composed of four parties. My party will vote "no"; the other three coalition parties intend to say "yes." What the opposition says is decisive. SPIEGEL ONLINE: What will you do should the EFSF reform pass despite your opposition? Sulik: For Slovakia, it would be best not to join the bailout fund. Our membership in the euro zone, after all, was not conditional on us becoming members of strange associations like the EFSF, which damage the currency. SPIEGEL ONLINE: If the euro only causes problems, why doesn't Slovakia's government just pull the country out of the euro zone? Sulik: I don't see the euro as the problem. It's a good project. Everyone involved can benefit from it -- but only if they stick to the ground rules. And that's exactly what we're demanding. SPIEGEL ONLINE: Which ground rules should we be following? Sulik: We have to observe three points: First, we have to strictly adhere to the existing rules, such as not being liable for others' debts, just as it's spelled out in Article 125 of the Lisbon Treaty. Second, we have to let Greece go bankrupt and have the banks involved in the debt-restructuring. The creditors will have to relinquish 50 to perhaps 70 percent of their claims. So far, the agreements on that have been a joke. Third, we have to be adamant about cost-cutting and manage budgets in a responsible way. SPIEGEL ONLINE: Many experts fear that a conflagration would break out across Europe should Greece go bankrupt and that the crisis will spill over into other countries, including Portugal, Spain and Italy. Sulik: Politicians can't allow themselves to be pressured by the financial markets. Just because equity prices fall and the euro loses value against the dollar is no reason for giving in to panic. SPIEGEL ONLINE: But do you really believe that politicians can calm the financial markets by stubbornly sticking to their principles? Sulik: Let's just ignore the markets. It's ridiculous how politicians orient themselves based on whether stock prices rise or fall a few percentage points. Excuse me, but is Mr. Sulik suggesting that politicians do what’s right and not what’s politically expedient? Where the heck is the political equivalent in the USA to this man? One can dream. Surely the EFSF will pass. The banking mafia and political class will get its way in the end. Greek 1-YR bonds now yield 150%!? No problems there – Just move along. Trade well and follow the trend, not the so-called “experts.” Larry Levin Founder & President- Trading Advantage
  12. On a candlestick chart, there is a pattern that technicians refer to as a doji. A doji has top and bottom shadows like a regular candlestick, but has practically no real body. This happens when the opening and closing price are the same, or so close that they just leave a sliver of a real body. A doji looks like a plus sign or cross. Finding a Doji can tell a technical analyst key things about a market trend Doji are considered a good sign of indecision in a market. Finding a doji with short and nearly identical shadow points suggests a neutral trading session. The market opened, had a small trading range, and then closed at the opening price. Neither bulls nor bears got the upper hand. Longer shadows show potentially greater indecision. They are neutral on their own, but paired with a trend, a doji can hint at a coming change. Market participants looking for a reversal like to see Doji Doji are like little battle scars of conflict. The trade had action but in the end no one won the day and the market closed pretty much where it started. If the market was on a bullish trend, this could be a signal that the bears were coming in. The opposite could be deduced if the market was in a bearish trend. A technician’s reversal argument is simple. If the dominant trend were still in control, there wouldn’t have been a wrestling match for control. And there would have been a clear winner. Instead, the real body showed that the day was almost a wash. Simple doji to look out for: Long hollow or green candles followed by a doji. An uptrend could be nearing its end if a doji reveals selling pressure. Look for confirmation from additional downside action. Long filled or red candles followed by a doji. Any downside action followed by a doji could mean buyers are coming in or selling pressure is abating. Watch for upside confirmation after this kind of formation. There are also a few special doji to watch for. Some form patterns with fantastic names like abandoned baby, morning star, evening star, and tri-star. Two worth mentioning are the dragonfly doji and gravestone doji. These are unique in that the real body is at the top or bottom of a long shadow. A dragonfly marks a session where the open, high, and close are all the same and the low forms a long lower shadow. This can be a sign that sellers were in charge for the trading session, but at the end of it, buyers came back. A dragonfly can indicate a bullish reversal in a downtrend or a bearish reversal in an uptrend. A gravestone comes when the open, low, and close are all the same and the high makes a long upper shadow. This can happen when buyers are in the driver’s seat for the trading period but sellers come back at the end. Just like the dragonfly, the gravestone’s potential for indicating a reversal will depend on the prevailing trend. Both patterns need to be seen as part of a bigger picture. Look for confirmation after they occur. Doji are common candlestick patterns – look for them in your favorite market and watch what happens around them Doji are candlestick patterns that can show a significant wrestling match is in the works. Neither the bull nor the bear are dominating the trading period. This means that you have to look at the whole chart – not just a single candlestick – to confirm the potential in a doji. What you are looking for is something that will tip the scales, a sign that someone will take the advantage. I look at doji as yellow flags during any trend. Tread carefully until the bigger picture is revealed. Larry Levin Founder & President - Trading Advantage
  13. Stop orders are often used to try to protect profits. Take the stop order to another dimension and use it to reverse your position and open another trading possibility! When you place a stop order, it is only activated if the market trades at or through the stop price. These stop prices are often key technical levels. If the market is breaking an important technical barrier, why not double the order and try to play the movement? Daytraders can use this technique to play trading sessions with wide ranges. Position traders can use the double stop in wider parameters, and target areas of historic support or resistance. Let's run the typical stop order scenario. A trader puts in an order to buy a contract. They are now long. They place a stop loss order below their entry price, usually at a key technical level. If the market moves higher, they are seeing a gain on their position. If the market moves too low, it will trigger their stop and close the position with a sell order. If the sell off in the market was triggered by bad news or it was the result of a trend reversal, what better moment could there be to reverse a position? This sets up a new potential trade opportunity if that stop level was based on a key technical area, rather than a simple point-based risk level. Run the same scene with double the stop order. When the market moved lower and triggered the sell stop, if it was two sells instead of one, the trader would be short one contract, positioned to play any continuing downside move. When a market breaks a key technical level, it might be signaling the trend shift and indicating that the opposite position should be played due to the momentum likely to carry forward the market from the technical break. The use of stop loss or contingent orders may not limit losses. Certain market conditions may make it difficult or impossible to execute such orders. Prices may gap through the stop price. Take a look at this example of a double stop in action: Past performance is not necessarily indicative of future results. When you place your new stop after the double stop is triggered, look for those areas of previous support to become the new levels of resistance and vice versa. Use these as a possible guide for your new order placement. Aim just outside these levels so there is sufficient room in case the market retests that area. Double stops can be used in moments when a trend might come to an end or the market may be poised for a reversal, like those that follow key economic reports. Using a double stop order is a way to take advantage of the market sentiment that is taking out your original position. It is just one way to try to play a breakout or reversal. This is a technique that can be employed when unknown factors come out into the light or when the rumor becomes news and is contrary to market expectations. Correction to last week's "Kicking" trading tip: The two marubozu back to back but at polar opposites in terms of market direction are obviously going to be uncommon. They reflect strong trading sentiment and to see that in two consecutive sessions would likely point to some kind of strong fundamental shift. Like most candlestick patterns, you would want to investigate what is going on behind the scenes before completing any analysis. Historically, there are no restrictions on where the kicking pattern would show up in relation to the beginning, middle or end of a trend. Best Trades to you, Larry Levin
  14. I think it's time for another look at Japanese candlestick analysis. Let's take a closer look at kicking, widely considered a high reliability pattern in candlestick charts. Kicking patterns are another reversal signal. Kicking patterns on a candlestick chart are formed when there are two marubozu - one white and one black - with a gap between them. Bullish kicking patterns would present as a black or filled candlestick without any wicks (shadows) followed by a white or hollow candlestick that is also without wicks. These are marubozu. They are formed when the market has a particularly one-sided trading session that closes at the high or low leaving just that real body of the candlestick. In candlestick charts, kicking patterns are very rare. The two marubozu back to back but at polar opposites in terms of market direction are obviously going to be uncommon. They reflect strong trading sentiment and to see that in two consecutive sessions would likely point to some kind of strong fundamental shift. Like most candlestick patterns, you would want to investigate what is going on behind the scenes before completing any analysis. Historically, there are no restrictions on where the kicking pattern would show up in relation to the beginning, middle or end of a trend. This two-bar pattern is "kicking" away the previous price trend. This signal is not necessarily a place to enter or exit - it is merely a sign that there is a pending reversal possible. The higher probability that candlestick analysts place on this one suggests that there is a strong chance of that reversal, but as always, you will want to wait for confirmation. Alternately, you could use this candlestick pattern with complementary analysis to plan a trade, relying on a signal like this as confirmation of your other fundamental and technical observations. Trading volume is among those complementary items to keep in your toolbox for this one. An increase in volume on the second candle would be a good thing for a kicking pattern. Best Trades to you, Larry Levin
  15. One thing that I see that catches traders up all the time is knowing their limits. There are times when it is probably wiser to step away from a trade or not trade at all. Sometimes the best favor you can do for yourself is to take a break. It doesn't matter who you are or what kind of trading you do. There are going to be times when you need to step back and take a break from things. This can happen after a bad trade, a big loss, and even after a really good performance. It can help you get things back into perspective. It also allows for an opportunity for you to review your trades, and learn from any mistakes or plans that you think cost you in the long run. It is easy for traders to get caught up in the action. A lot of amateurs find themselves getting swept away in the wave of enthusiasm. The trading highs that come with winning are just as strong as the pull of panic that can accompany a loss. It is up to the individual trader to look at themselves in the mirror and admit when passions and emotions, rather than common sense, are at the helm. Huge market movements like those that come on the waves of spiking prices are often irresistible. The trouble is that these times of high volatility can sabotage careful trading plans. Remember that there is no circumstance under which it is wise to enter a trade without a solid plan that includes: - specific entry points based on your analysis - specific profit exit level - specific loss exit level Even at the best of times it can be an exercise in patience and risk tolerance to trade. You don't want to muddy the waters by trading during extreme market events until the complete macro picture is available. An example of the kind of action I am talking about is relative to the panic over debt issues. When news is trickling in 24 hours a day from Europe and the United States, or when a big ratings agency decides to lower a AAA credit rating over the weekend, you can be sure that there is an environment where markets can gap through your stop prices or leave you very vulnerable. Trading in futures is risky enough without adding that level of anxiety. Every time you trade you should ask yourself what is motivating you. Before you enter any kind of trade you should ask yourself what you are looking for. Are you following a solid plan based on careful analysis and rules? Are you making sure you are only using risk capital? Can you really afford the loss if the market moves against you? Are you just trading to "be in the market"? Understanding the answers to these questions and being honest with yourself is important. These aren't just warnings to pay lip-service to. There are substantial risks of loss in all trading, and that's why you have to know and respect your limits. It is always ok to sit things out. No one ever loses money by staying on the sidelines and out of trades in a volatile market. Best Trades to you, Larry Levin Founder & President- Trading Advantage
  16. One of the biggest moments for the markets can come when there is a key news release or fresh fundamental data. Buyers and sellers seem to wrestle with the potential outcome, and in the case of larger announcements, volatility goes through the roof. The problem that I see some traders struggle with is knowing what news to look for, and how to trade it. Finding news that you can actually use. The thing that often comes up when you talk about announcements is that a lot of traders don’t understand the market reactions. A report will come out and it will appear as though it is good news, but the market will go down. The thing is that some people still try to trade on the news itself, when in reality they should be looking at what the market thinks the news will be. More than likely, those days when there was a “good” piece of data but the market went down, forecasts were calling for a better number. The other explanation is that the report just might not have been as important to the market as it was to the observer trying to trade it. Reports and news events are lobbed into a general basket of analysis called fundamentals. Fundamental analysis focuses on the things that have the potential to impact the supply or the demand in a particular market, thus affecting the prices. Reports that come out with some regularity, like initial unemployment claims, are unlikely to rock the S&P unless they are really, really shocking. Federal Reserve meetings, which are a rarer occurrence, tend to hold a bit more zest for traders. Monthly employment readings are also big. Producer Price Index (PPI) and Consumer Price Index (CPI) readings are key figures for inflation, which in times of economic troubles might get more attention than a decade or so ago. Perhaps one of the best ways to weigh what kind of news is valuable to traders is to keep your eye on the stories daily. Traders shouldn’t keep their head in the sand. If you know what is happening in the market that week, that day, and that hour, it is better all around. You can line up the market’s movements with fundamental events. Of course, there will be big news that comes out of nowhere that can still catch you and the market off guard. However, there are plenty of economic report calendars, Federal Reserve meeting notices, and other lists that show you key data points. Most news outlets will also report results of a general survey of economists showing what the basic expectations might be. Knowing what the expectations are ahead of the report is just as important as the report itself. Good news can quickly become bad news if it falls short of what people were looking for. A great example of this in recent news is the build-up ahead of the debt ceiling deal. In any other situation, finding a compromise or agreement would be considered a good thing and good news. The opposite was true in this case as investors and traders weighed the potential impact of continuing debt and a tarnish on the credit rating for the US. The highlighted area in the following chart shows the reaction leading up to and following the news: Past Performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. Focus on the bigger picture, not just the headlines. One of the best favors a trader can do for themselves is stay appraised of the bigger picture. There are plenty of places where you can get calendars online, and check for the stories that might impact the market. The longer you watch these fundamentals, the more likely you are to be able to distinguish which ones might bring higher volatility and potential trading opportunities. Avoid developing tunnel vision and focusing only on the things you think could be important. Watch for forecasts and estimates on reports – these are just as important as the actual news release and can be key in trying to gauge possible market direction. Good news and bad news are relative to expectations. Best Trades to you, Larry Levin Founder & President- Trading Advantage
  17. In Tip #14, I talked about some of the basics for technical analysis. Trends and simple chart patterns are just the tip of the iceberg for technical analysis tools. There are many advanced tools that technicians use to try to find signals in the market price. One of the terms you might hear quite often is moving average. The moving average for a market plots the result of a calculation that averages the prices in a certain time frame. Fans of the indicator say that it “smoothes out” the data, giving a clearer picture of potential trends. The word “moving” refers to the way that new data is added while older points are dropped. A simple moving average would take the closing prices from a set number of days – let's say 20 days – add them all together, and then divide by 20. The result can be plotted on the chart. The number of days is usually up to personal preference. The more days used to calculate the average, the smoother the line will be. Here is an example of a 5 day versus a 30 day moving average: Past Performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. Past Performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. See how the two compare? The 30 day has far fewer dramatic movements in it. The choice of line usually depends on the strategy that you are looking to use with the moving averages. Some moving averages use a formula to give recent data more influence on the final numbers. One of these is the exponential moving average, which some computer programs might use if you select this indicator. The following chart shows the difference between a simple moving average (in red) and an exponential moving average (green) where both are calculated for 10-day. See how the EMA looks like it responds to the changes in price faster than the SMA? Past Performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. One of the most common uses of Moving Averages is in confirming trends. Moving averages use data or prices that are in the past, so they are not really good for predicting trends. The slopes higher or lower in the moving average line can be used to help a technician looking to confirm a possible trend. Take a look at the chart of the 5 day moving average. A trader looking to hold a long position would probably not be comfortable doing so if the current prices were above a downward sloping moving average line. On the flip side of that, a short position would not be on the top of a trend-traders list if the market price was above the line. Some technical analysts use larger or bigger MAs to try to identify support or resistance. If the market price bounces off the line for a 100 or 200 day moving average, it is a possible spot for support or resistance. Trading opportunities might come into play if the prices crossover that line. Other strategies using MAs come into play when the lines for two different time periods cross each other. In this way the technical analyst will be watching for signs or confirmations of a reversal. Moving Averages can be used alone or as a complementary tool to other analysis. Like most technical analysis tools, the moving average for a market can be used in tandem with other analysis. It is a lagging indicator, since it uses price data from the past, so there is reason to keep it handy for confirming trends, rather than trying to apply it in a predictive manner. Keep in mind that different time periods might be more appropriate for specific trading intentions. If you are day trading, it probably wouldn't be the best use of your chart reading time to use a 50 day MA. You might feel better with something that is an aggregate of minutes or hours. Do your research and practice, and you might find that this simple technical indicator suits your style. Day trading is fast, and risky, and not for everyone. The quick pull-the-trigger style trading that is synonymous with day trading is not for everyone. There are great disadvantages and heavy risks. I think the big trick is to find and stick to a trading plan. Having a pre-determined approach to the market – a place to get in and a place to get out for profit OR for loss – should help you keep your head on straight. Trading with a plan instead of raw emotions is what separates the cocky cowboy image most people might have from the actual serious day trading reality. Best Trades to you, Larry Levin Founder & President- Trading Advantage
  18. The open for any trading session can set the tone for the day’s trade. Barring any major fundamentals, it can signal whether or not traders are going to be primarily bearish or bullish, or neutral and cautious. The start of the day can set the stage for your own trades as well. Starting off with a winning trade or having the market move in your favor at the beginning of the day gives you a confidence level that can propel you to an extremely successful trading day. Having a negative tone or having the market move against your analysis and any open positions will probably color your judgment for the rest of the day. It all starts with your first trade of the day, and I actually have a method I use to try to get on the right side of the market minutes after the open. I think the open can actually be one of the best times of day to trade. Markets often open in one of three ways: Balanced - if the market opens in balance, many traders will stand aside looking for opportunities later in the trading session. This is the type of open many successful traders tend to stay away from. This open causes nothing but trouble for the average trader who tends to chase trends that may never materialize. Out of Balance to the Upside - if the market opens out of balance to the upside, traders will look for a way to buy the market as soon as possible. This is the type of day where I believe excellent trading opportunities can likely be found. Out of Balance to the Downside - if the market opens out of balance to the downside, traders will look for a way to sell the market as soon as possible. This is the other type of day where I believe excellent trading opportunities can likely be found. Experienced traders will watch for these signals to determine possible entry or exit opportunities. Long opportunities will present themselves if the market opens and trends higher throughout the day. If that opening tick is the lowest price for the session, traders will look to jump on board with long positions. The same concept applies for bearish positions on a day where the opening tick is the highest price for the session. Be wary of a trend that forms after the market traded on either side of that opening tick – the pattern would be potentially weaker. The exception to this would be a market that is testing support or resistance after the open. If the market opens, trades to a known technical resistance or support level, and then turns and doesn’t try to go there again, it could still be a trending day. *PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. A day that fails to provide a strong indication for a trend following the opening can be telling you something about the market sentiment that day. Traders may be confused or lacking in conviction. This can be heralded by low volume on the open and a lot of back and forth. On days without a trend many traders avoid trying to call a breakout or skip trading altogether. Using the Value Area rule, it is possible to find opportunities here and there in markets, but try to not call breakouts unless you see clear signals. A market that is in “balance” opens inside the Value Area. It will likely not have a big trending day unless something knocks it “out of balance.” Markets that open outside the Value Area or out of “balance” could see big days, but watch how they move after that opening tick. You should be able to tell within the first few bars whether or not it is likely to be a poor trading environment with limited opportunities. Larry Levin
  19. A question I often receive is, "How can there be more buyers or sellers at one price? Isn't there a buyer for every seller and a seller for every buyer?" The answer is yes, but people are forgetting one important thing. There is a bid and an ask (or offer), and only one of them can be traded at a time. A bid is an expression of willingness to buy at a price; an ask (or offer) is an expression to sell. If the ES is trading at 1200.50, the bid is either 1200.25 or 1200.50. The answer depends on which way the market has just traded. Let's make it easy and simply say the ES is between 1200.25 & 1200.50, making the bid 1200.25. In order for the market to move from 1200.25 to 1200.50, someone must pay up to get filled. You may not be in a hurry and attempt to wait to buy 1200.25, but that will usually only happen when the bid/ask drops to 1200.00 & 1200.25 and you are actually filled on the ask. If you are trying to buy and really want to get filled, you must pay up at the offer or risk missing the trade. Conversely, if you really want to get filled on a sale, you must hit the bid, or reach down to get filled. Sure, there is someone on the other side of the trade, but without you choosing to reach up and pay the offer the market stands still. Therefore when trades are executed at the offer it is said to be done by the buyers even though there are sellers at that price taking the other side. Every buy will be filled on the offer and every sell will be filled on the bid, period. Let's say we once more have a number of 1200.50 and we see that over time (sometimes just a few seconds) the fills were 100 x 1300. We can say that there were 1200 more buyers than sellers at 1200.50 because of how traders reacted to the bid/ask spread when it was at 1200.25 x 1200.50 and higher at 1200.50 x 1200.75 (called the spread.) When the market was at the lower spread, 1300 buyers reached UP to pay the 1200.50 offer. When the market was at the higher spread, 100 sellers reach DOWN to sell the 1200.50 bid. When the spread traded around this price range there truly were more buyers than sellers at 1200.50. Understanding bid and ask can open up other realms of technical analysis. There are some traders who will look at the bid and ask order flows to try to get clues to potential movement in the market based on what buyers and sellers are doing. This is often referred to as reading order book flow or depth-of-market. If you look at the number of orders for each bid and ask around the current market price you can see the probable number of transactions available at those levels. Reading this information is the key to certain kinds of volume based trading systems and other trading methods that follow the book order flow. Best Trades to you, Larry Levin Founder & President- Trading Advantage
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