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Found 42 results

  1. Good News and Bad News

    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
  2. Crossing the Rubicon

    When Ben Bernanke was appointed as Chairman of the Federal Reserve seven years ago, the national debt was $7,932,709,661,723.50. For those of you not interested in counting digits, that number is nearly a cool $8 trillion, but still a tough sum to wrap your brain around. After yesterday’s end of the month $70 billion Treasury debt auction settlement, total US debt is now a record $15.692 trillion dollars, nearly double what it was when Benny became the leader of the Inkjets back in 2005. To make the seemingly unquantifiable somehow quantifiable - total US GDP is $15.6242 trillion, which is 101.5% of GDP. That’s right; the national debt is now GREATER than the Gross Domestic Product. US politicians, including the White House, Treasury, and the Federal Reserve have just crossed the Rubicon: the point of no return. Unless the US economy heats up like a furnace, which would drive GDP higher than total debt, we have crossed the Rubicon indeed. Speaking of the Rubicon we are reminded of Caesar and how the Roman Empire once ruled the world. England, France and Spain were also global empires that were brought to end by DEBT. To be sure, there was more to it than debt but it cannot be denied that profligacy was a major factor in all their declines. If you aren’t depressed enough, read on at Zero Hedge where the eponymous Tyler Durden writes about the implications of this unfathomable debt figure. http://www.zerohedge.com/news/total-us-debt-soars-1015-gdp Trade well and follow the trend, not the so-called “experts.” Larry Levin
  3. Bartender - Ben

    It seems that the main “drink” on the menu for the market is the FOMC report which will be served during tomorrow afternoon’s cocktail hour, after they wrap-up their two day meeting. All the drinks will of course be served with a garnish of Apple earnings, which came in far better than expected at $12.30 EPS after the market close that sent the stock higher in after-hours trading. Prior to Apple’s announcement, none of today’s news was exceptionally good, but the market seemingly shrugged it all off. It’s no surprise that the consumers aren’t really all that confident as the Conference Board’s gauge for consumers’ expectations declined to 81.1 in April, down from 82.5 in March. Also, the Case-Shiller report was released showing that U.S. home prices dropped sharply in February to hit the worst level in almost a decade. And sales of newly built homes during March dropped 7.1%, largely because of a sizable upward revision to the government’s data on sales for February. Bad numbers, scary numbers and of course revised numbers...... we might as well put the bevy of today’s financial data in a blender and serve it up over ice. All eyes are on Benny and the Inkjets to see if they will once again be pouring a toxic cocktail of “liquidity.” Trade well and follow the trend, not the so-called “experts.” Best Trade to all, Larry Levin
  4. Secret Trading Tip #3 : A Little Lesson in Lingo

    The world of trading has many parts that seem a little foreign to new traders. There are plenty of catch phrases, symbols, and other banter that can be intimidating or even confusing at first. One of the biggest sources of confusion includes the shorthand that you see for many markets. Understanding what you are reading is important, and learning the basic lingo can come in handy. Everything has a specified time and place All futures contracts (be it for commodities or financial instruments) have very specific parts, quantities, and dates associated with them – and that’s before you even worry about the price! Not all contracts are created equal. The value of the S&P 500 contract is five times the value of the e-mini S&P 500 contract. Those are two symbols you wouldn’t want to confuse! If there are markets you want to trade, visit the exchange’s website and learn about the key parts for each contract. These will include: The contract size The futures months for the contract The format for the price quote The smallest amount by which the price of the contract can move (whole points or fractions of a point, also known as minimum tick) Any daily trading limits for price movements Trading symbols for the contract - And much more! Gimme an H! Gimme a U! Memorizing all of this might seem like a bit of overkill, but in modern electronic markets making a mistake can happen in seconds and cost an unlimited amount of loss and confusion. Just remember that “fat finger” trade and the trouble it caused! Let’s take a look at a contract I trade, the e-mini S&P 500. This futures market trades electronically (hence the “e”) on the CME Group’s Globex platform. On their website, I can go to Contract Specifications and learn that: The symbol for this market is ES. I can use this code to find price quotes on many tickers. The contract size is $50 x the e-mini S&P 500 futures price. I can use this value to calculate the dollar risk/gain per point in the market. Basically, if each point is worth $50, a 3 point movement would be $150. If I want to calculate the total dollar value of a single contract, I just have to multiply the current price by $50. If the market is trading at 1,280.00 that means it is worth 1280 x $50 = $64,000. The minimum price fluctuation is 0.25. That means that if I am making an offer or trying to quote a price, I know that there are quarter point increments so I can’t offer a price like 1265.30 in this market. It would have to be 1265.25 or 1265.50. The contract details also list the trading times so I know when a session begins and ends, and also the trading contract months. This market has contracts for March, June, September and December (the quarterly cycle) – these months will be written with their own symbols as well – H, M, U, Z. The full list of monthly symbols is: JAN - F FEB - G MAR - H APR - J MAY - K JUN - M JUL - N AUG - Q SEP - U OCT - V NOV - X DEC - Z Each contract will expire at some point, and that date is relative to the contract month. If you can understand the lingo, you can avoid costly mistakes Some of this might seem like a no-brainer; after all, a lot of trading programs will give you the info with a single keystroke so you don’t have to memorize all of it. The reason I think it is still relevant to know this is because taking the time to learn and understand how the markets work and what the lingo means can save you potential trouble. What happens if you are long ESU11 and you try to close the position by selling ESZ11? Can’t do it – you would know that the ES U11 is the e-mini S&P 500 for September (U) 2011 and the ES Z11 is the e-mini S&P 500 for December (Z) 2011. Best Trade To You, Larry Levin Founder & President - Trading Advantage __________________ Larry Levin's Trading Advantage is a leading investment education firm that empowers traders to achieve and surpass their financial goals. More than 50,000 students have used Larry Levin's proven techniques for powerful results.
  5. I've already covered some of the better known patterns like doji (Tip #18) and engulfing (Tip#19) – now it's time to add harami to your candlestick chart pattern arsenal. Let's take a look at what this technical signal looks like, and what opportunities might be presenting themselves when you see it. Harami patterns can be bearish or bullish Harami, like engulfing patterns, are a two candlestick formation. They are actually often confused with engulfing patterns because they both involve candles where one real body is bigger than the other. The difference is that in harami, the preceding (or first) candle in the pattern is the longer one of the pair; it encompasses the whole body of the second candlestick. If you see this two candlestick pattern, it could be a sign of a reversal In a candlestick chart, bullish harami are formed when a long filled (or red) candlestick appears during an established downtrend and is followed by a smaller hollow (or green) candlestick. The reason this is a bullish signal is based on the idea that the first candle forms during a session with potentially high volume and bearish sentiment. The following day, there is a gap higher to open, a smaller trading range, and prices were supported above the previous day's close. This is seen as a potential indication that things are about to turn – a bullish reversal. A bearish harami is made up of a long hollow (or green) candlestick occurring during an established uptrend which is then followed by a smaller filled (or red) candlestick. Similar principles apply to this signal as they did to the bullish version – the first day makes way for a smaller range led by a gap lower and selling pressure that kept prices from rising. It is worth noting that some candlestick chartists suggest harami can include candlesticks of any color combination – filled + filled, filled + hollow, and hollow + hollow. The whole point for them is for a larger candlestick to be flanked by a smaller one. The reversal signal is just potentially stronger when the second candle is a different color. The two different candle sizes are just seen as an abrupt and sustained bit of trading contrary to the prevailing trend. Harami are telling you that there has been a sudden trading shift This candlestick pattern tends to crop up when there has been an apparent loss of trading momentum. The kanji definition of harami is embryo – I take this to mean that the second candlestick is just the early start of a new trading direction, contrary to the existing one. Like most candlestick patterns, it may be wise to look for confirmation of a reversal once you spot harami. Best Trades to you, Larry Levin Founder & President-
  6. Economic Fantasy Land

    The market is back to the races in Q2 today with a whole lot of green on the board. Stocks, oil, gold, and commodities all finished higher today. The reason: the news folks were touting the manufacturing numbers from February. Yes, the ISM index of national factory activity rose to 53.4 in February, topping economist’s expectations of 53.0. Although it was only a .4 bonus, it was a full point above last month’s number. The economic data released Monday was far from uniformly positive. Construction Spending data was not the +0.7% gain that was expected but a -1.1% decline. It was also far worse than last month’s release of -0.1%. It doesn’t seem to matter. Any and all economic data is viewed through a myopic lens that screens out any negative information and over-emphasizes the positive. As we saw today, the market went straight up despite the aforementioned construction spending that suffered its biggest drop in seven months. In addition, we learned the euro zone's manufacturing sector contracted for an eighth straight month in March, with the downturn spreading to the core economies of Germany and France. But none of this seemingly matters. With the central planners in charge, we’ve become conditioned to the good-news-only part of the proposition. When you continue to operate in economic fantasy land with a Federal Reserve determined to keep the dollars coming, and interests rates low, there’s no reason to consider the bad news. Trade well and follow the trend, not the so-called “experts.” Best Trade to You, ____________ Larry Levin
  7. Twilight Zone

    Ben’s Twilight Zone Power Point The market closed lower for only the second time in the last ten trading sessions, yet it can hardly be considered a pullback. Instead, it was just another lethargic trading day with mostly sideways action and light volume. It’s been about as exciting as watching paint dry. The entire daily range wasn’t even 10 points. Moving from the dull to the downright delusional, Ben Bernanke gave a speech today in front of students from George Washington University's School of Business as part of a four-part lecture series explaining the role of the “Federal Reserve in the financial crisis.” You can see the full power point outline here of his massive presentation. Read more: http://www.businessinsider.com/ben-bernankes-presentation-on-the-origins-and-mission-of-the-federal-reserve-2012-3##ixzz1pgeNYEhC Of course Ben’s version of the Fed dogma is decidedly different, or shall we see, the diametrical opposite of the actual truth. Let’s look at his two slides titled, “Policy Tools of Central Banks.” • “Monetary Policy -For macroeconomic stability: In normal times, central banks adjust the level of short-term interest rates to influence spending, production, employment and inflation. “ Somehow he forgot to add the sub-header, in not so normal times, the central banks print money to compensate for the global financial fiascos they helped cause. • “Provision for liquidity -For financial stability: Central banks provide liquidity (short-term loans) to financial institutions or markets to help calm financial panics, serving as the “lender of last resort” Hmm, perhaps another oversight? Didn’t Ben mean to say that the Central Banks would provide liquidity to help calm the financial panics they had a large role in creating by perpetuating a cultural of regulatory laxity and irresponsible spending? • “Financial regulation and supervision -Many central banks, including the Federal Reserve, also supervise financial institutions. To the extent that supervision helps keep firms financially healthy, the risk of loss of confidence by the public and ensuing panic is reduced.” Yes, he really does have the audacity to say that the fed serves as the protector of the public confidence AND that they act in a “supervisory” role in their relations with their banksters. Really, these bullet points are taken verbatim from Ben’s presentation. The truth is in fact stranger than fiction. Trade well and follow the trend, not the so-called “experts.” Best Trade to You, _________________ Larry Levin Founder & President - Trading Advantage
  8. To QE or Not to QE

    There is a one-day FOMC meeting tomorrow where the #1 topic of discussion will be “to QE or not to QE.” Should the FOMC print more counterfeit money out of thin air? The answer certainly lies in how badly the banksters want it, and if inflation is creeping up. The good thing for the Fed is that as it watches inflationary pressure – it doesn’t bother to count prices that go up. In anticipation of Tuesday’s meeting, JP Morgan says the following: We expect a relatively uneventful outcome following tomorrow's FOMC meeting. We do not expect any balance sheet actions, nor do we anticipate any strong signaling that such actions are likely to occur at a subsequent meeting. Because tomorrow's meeting is a one-day meeting there will be no new economic projections or funds rate projections, nor will there be a post-meeting press conference. To the extent there is any news it is likely to come from changes in the wording of the FOMC statement. We believe there will be only a few minor tweaks to the statement. Perhaps the most significant is a change to the wording of the inflation discussion, to acknowledge that headline inflation has been pushed higher by energy prices. (My editorial comment: the Fed doesn’t count energy prices because they are always & forever “transitory.”) There could be some fairly small adjustments to the growth description: a little more cautious about consumer spending and maybe a touch more upbeat on the labor market, while still noting that the unemployment rate remains elevated. We expect no change to the late 2014 rate guidance. Lacker dissented at the last meeting and will probably do so again tomorrow. A case could be made that Williams will cast a dovish dissent, or even Raskin or Tarullo for that matter; though we think it's more likely that we see no dovish dissents tomorrow. There “may” be some action in the morning; however, the late morning into the afternoon should be very slow. If anything unexpected is said in the statement, the market could be wild for 10-15 minutes after the release. If not, it will be as slow as the last FOMC statement. Trade well and follow the trend, not the so-called “experts.” _____________ Larry Levin
  9. 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. _______________ Larry Levin President & Founder- Trading Advantage
  10. Moral Hazard

    Before we get to the moral hazard piece, I have to mention rollover. Thursday is the first day of rollover, which is when the March ES futures contract changes (rolls) to June. We call it “top step” in the pit. In the past we would trade the new June contract on its first day (Thursday) but now we will wait until next Monday. The reason for the change is that volume will stay quite heavy in March until next Monday, which gives us the best chances for good trades. CONTINUE TRADING MARCH UNTIL NEXT MONDAY. The following is a response I gave to a question about our “moral hazard” comment that ends each of our emails. The gentleman that asked wanted my insight as a seasoned trader and financial commentator and not that of an egghead economist. You see, the man that asked is running for Congress and wanted a different point of view. Boy, did he get it. Moral hazard is a term that describes how people/companies will take crazy risks that they would otherwise not undertake because they know they will not be held accountable if the crazy risk turns sour. An excellent example is how Congress and the president of this country NEVER – EVER - put a banker in jail no matter what his crimes are. Oh sure, occasionally a patsy is sent to jail, but we all know that the bosses will NEVER go there. What's more, since they know that they will never go there and that the SEC never asks them to admit to guilt, they continue to commit crimes in their regular course of business to make that extra buck or two, or two million. JP Morgan bankrupted Jefferson County Alabama with horrendously bad swap arrangements - committed bribery - was found guilty - and paid a fine. Jefferson County is BANKRUPT...and JPM paid a fine to the SEC. Officials of JPM even bribed the Mayor and the Mayor went to jail. Did the bankers that initiated the bribe go to jail? Of course not - they just paid a fine. THIS IS MORAL HAZARD! They know that even committing bribery to force, then secure, a ridiculously overpriced sewer project that even put the town into bankruptcy will NOT send them to jail. And since they know this, they will do it over & over & over again: Moral Hazard, indeed. My specific comment at the end of each email pertains to the risk removed by Paul Kanjorski's committee that allows the bankers to get away with murder yet again - metaphorically. Congress forced the Financial Accounting Standards Board (FASB) to relax the accounting rules for the banking industry's real estate portfolio. Before April 2nd 2009, banks had to mark the value of the real estate portfolio to the current value of the homes (mark-to-market). Prior to 2009, values were increasing and they were happy to "follow the rules." When the housing depression hit, they got off the hook again (remember, they had already been bailed out) when Kanjorski's committee forced FASB to remove this provision of GAAP accounting standards and allow bankers to use "mark-to-model" accounting standards. I like to call these new standards "mark-to-myth" or "make-it-up-as-you-go-along" accounting. This, of course, is a joke. Bankers can use an in-house "model" that they say will value a house in the future at X price, which is any price they want. Can you do that? Can you walk into a bank and ask for a loan...using your home as collateral that you know is 30% LESS than your purchase price? Mark-to-market accounting says today's market is 30% less than what you paid so you have no collateral in the home - and the banker throws you out of his office. Once out of the banker’s office, which you bailed out in 2008, you realize that you didn't get a chance to explain so you walk back in. You kindly make clear "But sir, you fail to realize that I value my home at the original purchase price - JUST LIKE YOU DO. I am using your very own 'mark-to-myth' accounting standards. We are alike, aren't we?" When the banker controls his laughter, you are thrown out again. The bankers are not only above the law; they change the very law at their whim because the spineless clown-posse in Washington DC will do whatever they want, as soon as they are told. Because of this type of moral hazard (no accountability), bankers went right on breaking the law in 2009, 2010, 2011, and continue today with the Robosigning frauds. Why would the bankers care if they are caught breaking the law? They never go to jail and all fines are but chump change to the original bounty of said scam. Moreover, all fines paid are now in their "costs of doing business." The cost of buying the SEC and Congress is as normal to them as the cost of redecorating an office building. Without SEVERE punishment of their never-ending crime sprees, the crimes will never end. And this is the moral hazard embedded for looking the other way, small SEC fines, and changing FASB standards to make them happy. Trade well and follow the trend, not the so-called “experts.” Best Trade To You, Larry Levin
  11. Trading Tip #9: The Double Stop Reversal

    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. Best Trades to you, Larry Levin
  12. Trading Tip #5: Knowing Your Way Around a Chart

    For most traders, charts are like their road maps to potential trades. Technicians see potential patterns, key clues that they interpret for trading opportunities. Fundamentalists see confirmation of news stories or supply and demand dynamics playing out in the price fluctuations. Charts are indispensible to traders Understanding what a chart is telling you is paramount for traders We are going to look at the two most common chart types, and the basics of their construction. The main thing to understand when you are looking at any given chart is that there is key info that shouldn't change. Each chart will be showing you prices on one axis and time periods on another. Most charts will show the prices on the vertical axis and time periods (e.g. daily, hourly, five minute) on the horizontal one, like this: Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. The filler in the middle of the chart is made up of the price bars. Each mark corresponds to a trading period on the bottom and a price range on the right. On this chart, these are the little bars that show the opening price, the high price, the low price, and the closing price. I tend to favor candlestick charts, which show the same information in a different way. Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. Each candlestick shows the opening price, closing price, session high price, and low price and the color of each candlestick can tell you at a glance if the market closed higher or lower than the open i.e. if it was a down day or an up day. Whether a bar chart or candlestick chart, people who analyze charts (also known as technical analysis) are looking for clues to potential market direction. For them each new bar or candle can combine with one or several others to form patterns which they believe might forecast future price movements, or at the very least reveal possible trends. Technical analysis involves looking for possible clues or patterns in charts There are many different patterns that traders reading charts might be looking for. Some are simply patterns formed by the bars or candlesticks, others are more complex pattern which use other indicators. Let's take a look at some of the most basic: Sometimes, a chart that is showing a sideways pattern is said to be a in a channel. Every movement higher meets with overhead resistance where selling comes in. Each move lower brings in buyers which creates support. Candlestick charts also have special patterns that have been identified and named over a long history, said to stretch back to rice traders in Japan. Many of these patterns have fantastic Japanese names like doji or harami. Others have names which describe what is taking place in the pattern like engulfing patterns where the body of one candlestick overtakes the other. These are explored in more advanced Trading Tips. Recognizing certain patterns or trends can help when planning trades Technical analysis is one of the backbones for trading strategies. If you can correctly identify a trend, you might be able to spot a trading opportunity. If you can recognize and understand support and resistance, you might be able to use them when planning exit strategies. One of the key things to remember is that the history of a market's price action is no promise of future trading activity. Just because it went to a certain price level before, doesn't necessarily mean prices will move the same way again. Analysis is fallible. Another word of caution for traders - be careful not to let personal bias overrule chart observations. Sometimes we are guilty of seeing patterns to fit our desired forecasts. Best Trade to You, Larry Levin Founder & President - Trading Advantage 888.755.3846
  13. I think trading with a specific plan is one of the most sensible things a trader can do. It helps you learn and identify key areas to watch for in a market. More importantly, it helps you avoid sabotaging yourself because it helps keep your emotions in check. One of the key components of a trading plan is knowing your exits. One way to close an open trading position is with a limit order. Limit orders target a specific price level – they won't be filled unless the market trades there Limit orders are pretty straightforward once you get the hang of them. They are contingency orders. The market has to trade at a specified price level before it is even possible for the order to get filled. Even then, there is no guarantee that it will get filled. Limit orders say that the trade can be executed at a specific price level or better, but not worse Buy limit orders are used for an exit strategy on open short positions. Use these if you sold a contract to enter the market. Sell limit orders are used in a plan to exit open long positions. They are employed if you bought a contract to initiate a trade. Basic limit orders specify the market and the price level and the action to take. For example: Buy one December e-mini S&P futures contract at 1350.00 or better. To be an effective limit order, the market would have to be trading above that price point at the time the order is placed. Why? Because if you were to put in an order like that and the market was already trading lower, it would already be a better price to buy at. That means the order would probably just be executed at the market. The same kind of logic has to be played out when you are picking a price for a sell limit order. For example: Sell one December e-mini S&P futures contract at 1355.00 or better. For this order to work as it is intended, the market must be trading lower than the limit price, otherwise it is already at a "better" price to sell. Limit orders are likely the "happy" exit plan for a trade. They represent better prices than the market will be trading at the time you place them. That means if you enter a market and then place an exit order at a "better" price, you are probably aiming to exit at a profit. Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software. Once the limit order has been placed (buy limit to close an open short position, sell limit for an open long position), it is just a matter of waiting to see where the market goes. This part of a plan can help traders avoid those mental traps where they ride trades just a little too long, hoping to scoop up extra. Limit orders can prevent you from getting greedy. If you have other working orders at the same time, don't forget to cancel them if the other orders are filled. Traders can use limit orders as part of a complete trading plan that covers the potential for the good and the bad Limit orders only come into play when the market trades at or through your limit price. Otherwise, they remain in waiting. If the market trades through the price, you can only be filled at your limit price or better. It's that simple. These contingency orders can also be used to enter a market position, but I often recommend they work as part of an exit plan for trade design. Best Trades to you, Larry Levin Founder & President- Trading Advantage larry@tradingadvantage.com
  14. Greek Deadline

    The market continues to wait on the news of the next Greek bailout. Each day that something “might” happen, the market grinds higher. When that “something” falls flat, the market goes flat again. After an early slide this morning, the market received the headlines below from Bloomberg and resumed its pathetic, no volume, and zero volatility churn higher. There was a “final” deadline LAST Friday; then another “final-final” deadline Sunday evening; then another on Monday; then (today) Wednesday there was the “final-final-final” deadline; and now there is another: Thursday is the latest “now-we-mean-it-for-realz” deadline, before the latest ridiculous summit where Eurocrats will convene to steal more national sovereignty on behalf of the banking mafia. Will this newest deadline be met? Would it matter if they didn’t meet it? TROIKA DRAFT GREEK ACCORD SAYS 2012 GDP TO SHRINK AS MUCH AS 5% GREECE TO CUT MEDICINE SPENDING TO 1.5% OF GDP FROM 1.9% OF GDP GREECE PLEDGES TO MERGE ALL AUXILIARY PENSION FUNDS GREECE TO PLEDGE 20% CUT IN MINIMUM WAGE IN TROIKA DRAFT TROIKA DRAFT GREEK ACCORD RENEWS PLEDGE TO CUT 150,000 EMPLOYEE TROIKA DRAFT GREEK ACCORD PLEDGES 15,000 STATE JOB CUTS IN 2012 GREECE TO PLEDGE ACCELERATED LABOR, PRODUCT MARKETS REFORMS GREECE PLEDGES PERMANENT SPENDING CUTS IN TROIKA DRAFT REPORT GREECE PLEDGES NOT TO INCREASE SALES-TAX IN DRAFT REPORT But no worries folks – the genius Eurocrats of the Troika exclaimed that Greece will actually believes Greece will “return to growth” in 2013. Yup, in less than 11 months Greece will be on its way to stellar GDP growth. Give me a break. Trade well and follow the trend, not the so-called “experts.” _____________ Larry Levin
  15. Rigged and Predetermined

    You have often heard me say that the market is rigged, which it most certainly is via the Federal Reserve’s overall interest rate “engineering,” as well as outright manipulations through quantitative easing (QE), backdoor bailouts, POMO, massive swap lines, etc. Many of you believe that national elections are also rigged and therefore predetermined. Perhaps this is true in the USSA and why not; after all, the Fed will stop at nothing to “save” the banking mafia via the few things mentioned above. And there is so much more to list; however, what’s happening in Europe is frightening and that’s what I’ll focus on. What is happening over there is indeed rigged & predetermined; it is now out in the open for all to see; and it is yet again for the benefit of the banking mafia. 1. In early November of 2011 the Prime Minster of Greece, George Papandreou, had the temerity to announce he would allow the people of Greece to vote on a referendum regarding the Greek bailouts, and thus the “austerity” they were going through. The bailouts are wildly unpopular and therefore were sure to fail. This, of course, would go against the predetermined plans for Greece, and by extension the bailouts of the banking mafia. Within hours, Mr. Papandreou was removed from office not by the people of Greece, but by unelected Eurocrats in Brussels. 2. In mid-November of 2011 the Prime Minster of Italy, Silvio Berlusconi, also had the temerity to announce he was unhappy with the talked-about “austerity” that was coming his way when Italian bond yields spiked. This, of course, would go against the predetermined plans for Italy, and by extension the actual bailouts of the banking mafia. Within days, Mr. Berlusconi was removed from office not by the people of Italy, but by pressure from unelected Eurocrats in Brussels. Additionally, the unelected Eurocrats put an ex-banking mafia elitist in charge as its stooge. 3. Recently, Greece has made overtones that future “austerity” will not be welcome. It has done enough for now, Greek politicians say. This goes against the predetermined plan for Greece and may hurt the banking mafia so the pressure has been raised: Germany is demanding that Greece lose it sovereignty. The unelected Germans and Eurocrats in Brussels are demanding that Greece have no future control over its own budget. This has gone too far! How will the Greek people respond to this? 4. Finally, the president of France, Nicolas Sarkozy, has a high probability of losing the upcoming election and since he is part of the unelected bullies that pressure other countries, he must be saved. Losing Sarkozy raises the real possibility that the new president won’t go along with the predetermined outcomes they want for the banking mafia. Therefore, the chancellor of Germany just announced that she will help rig the presidency in France to get the predetermined outcome they all seem to want. She will actively campaign for Sarkozy's re-election. In the Global Post we read Hermann Gröhe, the general secretary of Merkel's Christian Democratic Union (CDU), said over the weekend that Merkel would "actively support Nicolas Sarkozy with joint appearances in the election campaign in the spring," The Guardian reported. "France needs a strong president at its head, and...The UMP and France are in good hands with Nicolas Sarkozy, who has demonstrated foresight," Gröhe said, according to Le Figaro. (Read: Gröhe knows better who should be president of France than the French people and therefore the Germans should intervene…it’s being rigged) Hermann Gröhe, the general secretary of Merkel's Christian Democratic Union (CDU), said over the weekend that Merkel would "actively support Nicolas Sarkozy with joint appearances in the election campaign in the spring," The Guardian reported. "I did not know she voted in France," the French president said in an interview with multiple television channels on Sunday evening. It is a rare move for Merkel; European politicians tend to have an "unspoken pact" to not interfere with other countries' elections, according to the Guardian. The end of the last sentence should read… European politicians tend to have an "unspoken pact" to not interfere with other countries' elections…until NOW. After all, there are banksters to be bailed out and national sovereignty will never come before a bankster’s profit. The Onion had this nailed years ago in The Sham Election that you can watch here… [ame= ]http://www.youtube.com/watch?v=LBrDzZCOQtI[/ame] Trade well and follow the trend, not the so-called “experts.” Larry Levin
  16. Europe Downgraded

    Last Friday the European continent was (essentially) completely downgraded. Standard & Poor’s slammed the region with NINE downgrades – some one notch and others two notches. S&P cut the ratings of Italy, Spain, Cyprus, and Portugal by two notches while the ratings of France, Austria, Malta, Slovakia and Slovenia were each cut by one notch. In its statement S&P said the following “Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.” Since the market is rigged by policymakers and central bankers, the market rallied on the news. We heard the normal excuse of “it’s priced in” and “it wasn’t a surprise” all day. It surely wasn’t a surprise because S&P warned of this move about six weeks ago; but was it really priced in? When the market first learned of the potential mass downgrades, it was trading at 1255.00. If the damaging downgrades were indeed “priced in,” wouldn’t that have led to an overall market decline from which a reasonable excuse would have been “it is too low now and we saw this coming; it wasn’t as bad as expected; and it’s priced in?” Clearly nothing was priced in because Friday’s market was already trading 30-points higher before the news even hit the tape. When an individual stock is expected to lose money in a quarter it often declines in share price; however, when the news is released that it wasn’t worse than some may have feared, the price often rallies. But in this scenario, it is rallying from a much lower starting point; so to say that the “bad news was priced in” is true. In our recent real life example above – it is a farce to claim such a thing. It sure was “lucky” that the market was all a flutter with near guarantees of QE3 coming from the Federal Reserve on the very same morning that such a bomb would explode on Fraud Street. Coincidence? Uh-huh, sure. But that was only part of the story Friday. JPM missed earnings and although it closed lower, it rallied from its open. Greece was back in the news too. Fears of it defaulting very soon are reaching new heights along with its bond yields. On Monday Greek 1-YR Notes yielded a 415% interest rate. Yields that high are a default but as mentioned above, the markets are now rigged daily by political hacks and central banksters. No CDS instruments have been paid out because bondholders are said to have accepted a 50% haircut. Of course, everyone knows that 50% is higher than 0%, which is what Greece will pay when it finally pulls out of the EU…and yet not a single cent of this insurance (CDS) has been paid. Why? Because the market is rigged by politicians and central banksters, who have told the agency that decides what a “default is” refuses (read: has been told) to declare a default. Now Greece is demanding an 80% haircut and bondholders are fighting back. Some say this needs to be resolved by the end of THIS WEEK in order to keep from a total default. I say – get it over with already! In other “bullish” news, Standard & Poor’s downgraded the actual slush fund facility that is bailing out Greece, Spain, Ireland, Italy, and Portugal from AAA to AA+. S&P says "if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'." In other words if S&P keeps downgrading the individual countries, the bailout facility will also be downgraded. But no matter – it’s “priced in” 4evvvaaaaahh!! It’s all bullish. It’s all rigged. Trade well and follow the trend, not the so-called “experts.” Larry Levin Founder & President- Trading Advantage
  17. The Market is Dead

    The market is dead. Continuing with last week’s theme – there was no volume, no volatility, and no “action” of any kind. If the market isn’t dead, it sure is in a very deep slumber. The range has been so tight for so long that when it does wake up, or come back to life, it should do so with a bang. Speaking of today’s lack of action, Reuters said the following… NEW YORK (Reuters) - Stocks ended slightly higher on Monday in a light-volume session as investors stayed cautious ahead of corporate earnings and key auctions for European debt this week. After breaking out of the gate with strong gains on the first day of trading in January, stocks have been confined to a tight range in daily moves and volume has been low. The S&P 500 faces strong technical resistance as it has been unable to pierce through 1,285, the closing high set in late October. Months of summits and meetings have still not convinced investors that Europe will avoid messy defaults or a break-up of the euro zone. "That is what the market wants to get a look at - what is it that these multinationals are seeing in the global environment that gives them pause, or is the tone going to be a little better than expected," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey. Debt sales by Spain and Italy later in the week should provide insight about investors' confidence in plans to solve the euro zone financial crisis. "There is this sense that we really need to see something that is going to convince us that this EU challenge ... is a headwind that can be managed," Kenny said. After meeting in Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy warned Greece it will get no more bailout funds until it agrees with creditor banks on a bond swap and a deal to avert a potential default. Perhaps the market will find whatever it is looking for that will provide a spark to the market on Tuesday? Trade well and follow the trend, not the so-called “experts.” Larry Levin
  18. ISM and Debt

    I had high hopes for Monday’s trade when I said “Are enough traders home from their holidays to make for good trading Monday? That’s a close call in my opinion; however, there just may be enough scheduled economic data releases, including the Fed, to make our first day of 2012 a good one.” Sadly, it was not a good trading day; volume was still low; volatility was non-existent; and news was plentiful but the entire intra-day range was less than 10-points. 100% of the day’s gains were put in at the open – it was all done on Globex. The ISM manufacturing report in the morning was good, but not good enough to extend the huge gains of the pre-open session. Consensus for this report was for a reading of 53.2, but the actual number was 53.9. A reading above 50.0 indicates an expanding manufacturing sector. Some analysts had expected this good reading because it was the report that covered the end of the year. And what’s important about that are the many expiring corporate tax incentives and credits of 2011 that businesses made sure they received by bringing production forward. Here are a few; Credit for Construction of New Energy Efficient Homes, New Markets Tax Credit, 15 Year Straight Line Depreciation, 100% Bonus Depreciation, and many more. They have now expired. In other news, the USSA is now officially a banana republic. As of today, the US Treasury admits that it owes more than 100% of the USSA’s GDP in debt. To be specific, our admitted-to debt to GDP ratio is now 100.3%...not including the $100+ trillion in unfunded liabilities that the government refuses to count, yet refuses to cut. Trade well and follow the trend, not the so-called “experts.” Larry Levin Founder & President- Trading Advantage
  19. Lawsuits

    Friday’s early trade was higher on general optimism. The early rally ran into resistance and started its normal sideways (lack of) trend. Shortly into this sideways zone the news hit: lawsuits. On the face of it you wouldn’t expect the news to drive down equities, but this is the only thing of importance that hit the tape. Perhaps the market is worried that the government subpoenas will spread. Are Citibank, JPM, and Goldman execs next on the list. Maybe when hell freezes over, but we can hope. From the lawsuit: This action arises out of a series of materially false and misleading public disclosures by the Federal National Mortgage Association ("Fannie Mae" or the "Company") and certain of its former senior executives concerning the Company's exposure to subprime mortgage and reduced documentation Alt-A loans. Eager to promote the impression that Fannie Mae had limited exposure to- subprime and Alt-A loans during a period of heightened investor interest in the credit risks associated with these loans, Fannie Mae and its executives misled investors into believing that the Company had far less exposure to these riskier mortgages than in fact existed. Between December 6, 2006, and August 8, 2008, (the "Relevant Period"), Daniel H. Mudd ("Mudd"), Enrico Dallavecchia ("Dallavecchia") and Thomas A. Lund ("Lund") (collectively, "Defendants"), made or substantially assisted others in making materially false and misleading statements regarding Fannie Mae's exposure to subprime and Alt-A loans. For example, in a February 2007 public filing, Fannie Mae described subprime loans as loans "made to borrowers with weaker credit histories" and reported that 0.2%, or approximately $4.8 billion, of its Single Family credit book of business as of December 31, 2006, consisted of subprime mortgage loans or structured Fannie Mae Mortgage Backed Securities ("MBS") backed by subprime mortgage loans. Fannie Mae did not disclose to investors that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by the Company towards borrowers with weaker credit histories, including Expanded Approval ("EA") loans. As of December 31, 2006, the amount of EA loans owned or securitized in the Company's single-family credit business was approximately $43.3 billion, yet none of these loans were included in the Company's disclosed subprime exposure. …The result of these disclosures was to mislead investors into materially underestimating Fannie Mae's exposure to reduced documentation loans. Fannie Mae made similarly misleading disclosures concerning its exposure to reduced documentation loans in public filings throughout the Relevant Period. By engaging in the misconduct described herein, Mudd violated and aided and abetted the violation of the antifraud and reporting provisions of the federal securities laws; Dallavecchia violated the antifraud provisions and aided and abetted the violation of the antifraud and reporting provisions of the federal securities laws; and Lund aided and abetted violations of the antifraud and reporting provisions of the federal securities laws. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants. This news seemed to send the market lower, which then led to yet another maddeningly narrow chop channel. For more than four hours, the ES traded in roughly a 5.00-point range. Trade well and follow the trend, not the so-called “experts.” Larry Levin Founder & President- Trading Advantage Larry Levin's Trading Advantage is a leading investment education firm that empowers traders to achieve and surpass their financial goals. More than 50,000 students have used Larry Levin's proven techniques for powerful results.
  20. Not According to Plan

    The market fell again Tuesday and although three down days in four is nothing for central banksters to truly worry about (and there is plenty of lower support in the S&P) – it nevertheless is not going according to plan. The Fed’s QE1 plan did work – it saved the markets from total annihilation. However QE2, QE Lite, ZIRP, the Twist, secret loans, unlimited swap lines, etc has done little if anything. Moreover, the market is right back to where it was when the Fed announced its latest bid-rigging scheme with multiple other central banking mafia heads in tow. So I’d say that overall it simply isn’t going as they had planned and Bill Bonner of the Daily Reckoning agrees in a recent article. http://dailyreckoning.com...snt-stick-to-the-script 12/13/11 Baltimore, Maryland – Darkness without a dawn… The Dow down 167 yesterday. Gold down $48. Nothing to get excited about. The excitement is still ahead. When the Dow cuts through the 10,000 mark and heads to 6,000. Stay tuned… In the meantime, yesterday’s Financial Times told us that the industrialized nations will borrow $10 trillion this year. Next year, the figure should be higher. Where does all that money come from? It’s more than the world’s total savings. Not that we know exactly, but total world GDP is about $50 to $60 trillion. Savings should be about 10% of that — or only about $5 to $6 trillion. So how are the developed nations able to borrow so much? With so much debt turning over, it makes the world financial system extremely vulnerable to inflation…or just a change of sentiment in the bond market. Which makes us wonder. What would happen if the lenders balk? We are, as all Dear Readers know, in a Great Correction. And in a great correction asset prices fall…along with a general fall-off in employment, consumer spending, investment, GDP growth and all the other things that make a robust economy. Demand drops…which typically causes prices to fall (or at least not to rise as quickly as before). There is less demand for credit as for everything else. So, the pool of available bonds falls…forcing up bond prices and forcing down bond yields. Got that? Well, don’t worry if you don’t. Because there’s at least a 50/50 chance it won’t happen that way. So far, the Great Correction has followed the usual script. Bond yields have fallen. Price inflation has generally come down. But demand for credit — as evidenced by the aforementioned $10 trillion government financing costs — is running hot. ‘Typically’ may not matter. Because this is no typical downturn. And it wouldn’t be too surprising if all this demand for credit pushed up bond yields. Wouldn’t that be a drag? And here we find ourselves with a grim, but philosophically amusing, insight. Typically, every cloud has a silver lining. Every glass that is half empty is also half full. And dawn follows even the darkest night. That’s just the way the world works. But what if the cloud has no lining, neither of silver nor of anything else that reflects light? And what if the glass is completely empty? In the normal economic world, low interest rates are the half-full part of the correction glass. A correction comes. Asset prices go down…along with all the other things mentioned above. But interest rates go down too…which make it easier for new projects to clear the “hurdle rate.” At 6% interest, for example, a new project has to return at least 6% to breakeven. Any new investment that won’t produce more than a 6% minimum gain is quickly abandoned. But as the correction drives down yields, to say 3%, all of a sudden a lot more investments begin to make sense. Dawn comes. Lower inflation rates…and lower asset prices…help too. As prices fall, shrewd investor and careful businessmen can put their money to work again. Employees are re-hired. Household earnings recover. Soon, the downturn is over. Both booms and busts are, normally, self-correcting. But leave it to the feds to stop the sunrise. This huge demand for credit from the industrialized governments could drive up interest rates. Imagine what that will do. Already in a slump, households, businesses and investors could find their borrowing costs going up, not down. They could find prices rising, too, especially the prices of energy and food. What a world…a major slump, but with rising prices and rising interest rates! And then, consider what happens next. The feds will err again. They will feel obliged to finance government borrowing themselves. Here’s the Bank of International Settlements, giving us the heads up: The Bank for International Settlements Sunday issued an oblique endorsement of coordinated action by the world’s largest central banks to ease funding conditions for banks. “A freezing of interbank markets in major funding currencies, as during the recent crisis, may require the ability to supply official liquidity in major currencies in an elastic manner,” the BIS wrote in its regular quarterly report.” — MarketWatch It was only a week ago that 6 major central banks announced a coordinated rate cut — expected to juice up the markets. And now all major central banks seem ready and willing to sacrifice the integrity of their currencies in order to protect their bond speculators. This is what we expected all along. But we didn’t expect it so soon. It causes us to revisit our “long, dark road to Tokyo” forecast. You remember our prediction: the US has already followed Japan through one “lost decade.” We figured it would lose another one as the Great Correction drags on. But things could happen faster…and worser. Japan financed its own deficits with its own money. Now, everybody is running deficits. And the amounts to be refinanced are staggering. Bond buyers may balk…or simply be unable to swallow so much debt. Which will cause the central banks to come into the picture — with coordinated money-printing. Instead of going down, bond yields and consumer prices could go up. Think things are bad now? Wait until the economy has to deal with a Great Correction and inflation. Trade well and follow the trend, not the so-called “experts.” Larry Levin Founder & President
  21. 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
  22. Let me introduce you to one simple technique I've used to pick intraday market direction with 80% accuracy. Would you like to know if a particular trade has an 80% probability of working? Would you like to know exactly where to enter that trade, and where to exit? Would you like to trade this technique with a 2 point stop loss or less? It Doesn't Matter if the Market is Going Up or Down, This Simple-to-Learn Method Has a Historical Accuracy of 80 Percent! Using just two key numbers each day, floor traders and other professionals can try to pick the direction, entry price, stop loss and target price of a particular trade. It doesn't matter if the market is going up or down - this simple to learn method has a historical accuracy of 80%. In fact it's called the 80% Rule. Each morning you will know what those two key numbers are. Then, if the set up is correct, simply enter the trade, set your stops, set your target price and sit back with a trade that has an 80% expectancy of hitting the target. What could be easier? Here are the basics for the 80% Rule: The Value Area (Secret Tip #12): The range of prices where 70% of yesterday's volume took place. For instance, if the value area in the S&Ps is 115800-117200, then 70% of the previous day's volume took place between the prices of 115800-117200. The 80% Rule: When the market opens above or below the value area, and then gets in the value area for two consecutive half-hour periods. The market then has an 80% chance of filling the value area. The value area and the 80% rule can be excellent tools for judging potential market direction. Many traders familiar with the value area and the techniques that go along with it use it to help them decide what trades to do each day. A couple of key points to remember: If the market opens above the value area, try to enter a short position as close as possible to the top of the value area. Conversely, if the market opens below the value area, aim to enter any long position as close as possible to the bottom of the value area. Once you get used to it, you will find that using the value area each day will be valuable in your trading. (Pun intended!) The 80% rule is a simple way to ride the market as it potentially fills the value area. However, there is an exception to be alert for. If the market opens inside the value area and then migrates above or below it, the 80% rule can still come into play. Watch for it to get back into the value area for those important two consecutive brackets or 30-minute bars. Best Trades to you, Larry Levin
  23. Ramp and Camp

    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
  24. Trading Tip #8: Avoiding Mental Sabotage

    I have heard that 95% or more of all traders ultimately fail. Have you ever wondered why? Most traders will tell you it was the system or method they were using. They'll also tell you they had a few bad trades they couldn't recover from. Or their dog chewed through the telephone cord just as their computer crashed, and they couldn't get out of a losing trade. Everyone has a different reason, but when you hear enough of them, a pattern begins to develop. I believe most traders fail because they sabotage themselves. The markets work differently from other investing opportunities. There is probably more freedom in the trading business than any other industry in the world. You can do what you want, whenever you want to do it. You can trade 1 contract or 100. Buy the market or sell it; it's up to you. The only thing that holds you back is running out of capital. Most people are not accustomed to that much freedom. If you can't control the market, the only thing you can control is yourself. Trading is also very different than the things we do on a daily basis. In everyday life we exercise some control over our environment. If a room is too dark we turn the light on. If we want to go somewhere, we jump in the car and turn the key. In trading you can't control what the market does. No matter how much you want the market to go in a certain direction, there is nothing you can do to force that to happen. You can't turn a key or flip a switch. Hoping, pleading, screaming... nothing will make the market do what you want it to. Embrace the uncertainty - plan for the best and worst cases One of the most important things you can do to avoid the mental sabotage is to understand the lack of control you have over the market, and plan for every trade. Now I don’t mean a trading plan like buy a contract and then close the position when the market trades higher. I mean a real plan. That includes specific entry points based on certain market movements or conditions. It means exit strategies for when things go right and for things go really wrong. It means placing limits and stops and keeping your emotions in check. If you have a roadmap for your day, you are less likely to fall into that trap of mental sabotage. Remember: if you can't control the market, the only thing you can control is yourself. Successful traders all understand and embrace this concept. Unsuccessful traders continue to try to make the market conform to their wishes. Dear Larry, "Just a short note to say thank you. These past few weeks have been a real eye opener for me and thanks to you I'm making more money trading the S&P's than ever. I've been trading the S&P's for over 5 years and never have I had as much fun and without the stress. Using just the "One Time Framing Technique" and the 80 Percent Rule, I have made over 5,400.00 dollars in the past four weeks. Just today your 80 Percent Rule netted me 2,150.00 dollars. Not only am I glad I didn't return your course, now you couldn't begin to pry it from my hands. Many, many thanks for everything." William P. San Ramon, CA "It's not brain surgery, you just follow the techniques and you can make money. Larry's Program really works." Fred C. Amityville NY (Testimonial from The Secrets of Floor Traders Course.) _______________ Larry Levin
  25. Dysfunctional

    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
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