Now reading...

I have not quite finished Japanese Candlestick Charting Techniques by Steve Nison; its one of those slog-it-out reference books - kind of like reading a telephone directory from cover to cover. It IS a fantastic reference manual but man... not exactly ENTERTAINING reading. I read this on the train, and after 3 pages I'm snoozing like a baby and drooling on the shoulder of the person next to me.

Hence for a bit of relief I went to my library and got A Random Walk Down Wall Street by Burton G. Malkiel. Now THIS is a good read. I'm about a hundred pages in and he is dealing mainly with market bubbles - the general theme communicated is that investors are and always will be totally insane. Fear and Greed keep on fueling boom and bust crazes since the dawn of time, and there is no reason to expect the human race to become rational or learn a lesson from history.

So far this book is brilliant. If it maintains this quality to the end it goes on my list of classics for sure.

Sold the lowest tick!

They say it happens to every trader at least once in his life and now I can say this is another market experience under my belt!

~:-(

Well as long as you've got your money management system in place you can just slap your knee and laugh.

Anonymous said...

"I am not trader nor investor but i am market learner. I like to study about markets . So what do u think, where oil will go from here ? Do U trade in any market ?"

I would nowadays call myself a currency trader as I have virtually zero interest in trading other markets. I love the currencies, I say its the king of markets. However due to the interrelation of all the markets I keep my eye on them all to some degree. Besides, I just like watching them. Some people watch trains, some people watch birds, I watch markets. ~:-)

Where do I think oil will go? I think personally that it will go down because there seems to be a global backlash against these prices - its basically pissing off everyone on earth. I would guess that having been broken the $100 level will become a major pivot and price will rotate around it, possibly with a low of around $60. The question is WHEN; the only sign of a change occurring is the previously mentioned falling open interest.

But this is pure speculation, I would not take a position on it - that's just my guess based on everything I have read and heard and the general mood that seems to surround it. The fact is the trend is up, and we all know that trying to pick a top is Russian Roulette with 3 in the chamber.

Crude Oil

I do not trade the oil market but I watch it due to its obvious effect on other markets, and it is quite interesting to watch. Apparently the current wild prices are in part due to a kind of "blow off move" from small speculators that built up a record number of short contracts that they are now trying to bail out of...

Bloomberg: "The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell."

This is an interesting market because it hits your daily life directly, every time you pull into the gas station to fill up - when you fill your tank and go "Holy Crap!" its because of these guys who are a mix of commercial traders, large speculators and "small specs" (i.e. single individuals with enough capital in their account to go into the pit and speculate).

The small specs are where the term "dumb money" comes from, and it seems that the dumb money started shorting the market hard around 100 bucks a barrel. What does that mean? It means they signed a contract agreeing to SELL OIL at, say, $100 at some time in the future, even though they do not own the oil. Some people find this concept difficult to grasp but it isn't really.

To understand shorting a market, think of the Avon Lady. She goes around knocking on doors to get sales for products she does not yet own. THEN when she has sales she has to go buy the stuff to get to the clients. This is short selling - she sells first and buys second, where as normally you buy first then sell.

So what happens if in between selling products to the clients and her going to buy the stuff to deliver the prices Avon charge for their merchandise shot up? Thats right - she's out of pocket for the difference because she still has a handful of contracts in her hand and has to make the client good. She cannot pass this increase onto the client, because they can say "No, you sold it to me for $X.XX" - On the other hand if prices of the merchandise fell she would be pleased because she gains the difference. Thats what these small spec oil traders where thinking - i.e "Can't go higher! Can't go higher!"

But prices went higher.

A futures contract between a commercial seller and a commercial end user is straight forward - it locks in a price for future delivery so that they are both happy with the deal. If a farmer wants to sell his wheat to a baker, he can sell it now at market, or if it's still in the field growing he could agree to sell it at the current price and deliver in June. Thats a future's contract. Simple.

So these poor short sellers who gambled on oil going down - they now want out of the contract badly but who'll buy such a contract? Of course anyone who WANTS the oil because they can get it for cheaper than the current price. Commercials will happily buy the others side of these contracts thus closing down 1 point of open interest (outstanding contract). This is what has been happening for some time. This is why the COT usually shows that when the specs are long the commercials are short, and visa versa - they have different and opposite needs.

Bloomberg: "The rush to buy back contracts may be linked to the record number of short positions that had been built up in recent weeks by small-sized speculators, which the CFTC refers to as "non- reportable'' traders because their holdings are small."

Apparently the current high prices are not connected to the real supply and demand of Crude Oil but is purely a speculation driven move: "John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell Plc, pegged the proper range "somewhere between $35 and $65 a barrel.''"

So maybe we will see oil come back down to something reasonable in the future, although some say that it probably won't go back under $60 or $70, but personally I wouldn't want to be hoping and praying for that if I was in the pit clutching a short contract for Crude at $100 - I'd be screaming my lungs out for a buyer and waving my arms around. "Let me out! Let me out! Let me out!!! $135? SOLD!!!"

A million fragments

My definition of learning is that it is the slow accumulation of a million fragments of experience that begin to connect to form understanding. Understanding occurs when a piece of acquired information connects directly to a relevant experience.

For instance you may read about support and resistance (the intake of information), but only when you attempt to trade based on that knowledge will you begin to generate what are firstly disjointed fragments of understanding.

When approaching any subject as a newbie we may start off knowing literally nothing, and then this accumulation begins. The fragments we collect are small; the reading an entire book on trading may yield perhaps two or three definite single connections and the rest appears to vanish into the "realm" of the subconscious.

If we persist, we make more and more connections and our understanding begins to grow exponentially as we verify and counter verify previously experienced fragments of knowledge. It is my belief based on observation that real learning occurs when the mind recognizes a link between two pieces of information (usually something new plus something remembered) and then generates a third. These "aha" moments seem to bond something in the mind that is more permanent - the information then becomes OURS. Due to this it is also possible to make new connections from the same information, thus it never hurts to read a book twice or more, as you may often see deeper and deeper meaning in it.

In time we reach a point where the mind contains enough understanding on a subject to be able to generate new information and connections within itself. The critical components in this process are of course the constant intake of information (study) married to real life experiences (practice) over a long enough period (time) to build up the result (understanding).

There you have the formula for mastery :

Study, Practice, Time = Understanding

How to finally get control

Robbie said: "My biggest losses come from chasing price, entering trades without my requisite criteria being met, etc. Greed. Ugh. A double-edged sword bigger and badder than leverage."

I fully know what this feels like, and I'm sure other readers do also - its like the market is deliberately against you, mocking you. You go long, price stops and goes down - you go short, it stops and goes up - you go long, price goes sideways so you get out, then it rockets off in the direction of your trade leaving you behind, on and on, day after day. You just want to smash your forehead on the desk.

You have to get to the point where you see that it is YOU doing it. It sounds crazy I know. Here's a good strategy for putting a stop to this madness.

Get yourself a trend following system of any kind, and trade it on a WEEKLY BASIS. You are only allowed to touch or look at this system on a Sunday to make trading decisions. The rest of the week, do not even open the charts...

If you can do this, you will learn to your amazement that you are more successful when you are not there to interfere. Then it begins to sink in - "Oh... leave it alone, give it some room to breath, stop watching the price and getting spooked in and out" and finally "Oh, it was me doing it all the time. Har har har!"

The other aspect is probably tight stops - trading a market this volatile with tight stops is a doomed venture. Do your money management such that you can put them out of harms way in places that make sense.

Use wide stops, and then leave it alone - don't look at it. See how much better this fairs compared to tight stops and constant interference. You can't be told this - you can't hear this from me and then think that you know it so you can now skip this inconvenience. It has to be experienced. SEE how you are the one who's out of control, and by not being there you do better.

NOW - something else comes up, does it not? "Wide stops? Weekly charts? I can't do that! I need to make a ton of money NOW so I can quit my suck-ass day job and give my boss the well deserved finger. I think I can only handle it for six more months, a year at the most! I need to trade hourly charts and...."

OH!...... So you have some other needs in the mix other than mastering the art of trading? Well fancy that. The cruel truth is the market does not give a single damn about your needs, your job, your life situation. It will take all of your hopes and dreams and sweep them right away. Forget hope, forget WANTING it. You can want yourself to death, the market will still take your money. It will take it ALL. You can fund your account ten times over and the market won't be satisfied - it will still take more.

Notice how this concept is hard to grasp - we grow up in an environment where we can expect some kind of respect and understanding from those around us; where if we cry people will have mercy and take pity and give us a second chance, but here it counts for nothing. Come to grips with the fact that the market does not care even if you commit suicide after it takes all your money - it will still take it. It can and DOES ruin people. What are hopes and needs doing in an environment such as this?

So there is only one single solution - RIGHT BEHAVIOUR. A plan, sticking to the plan, patience, self control, long term thinking, study, commitment, more patience, determination, resilience, intelligence, a positive attitude, the right motivation... Above all, you have to start enjoying it.

How I use Fundamentals

There's a school of thought that says that everything you need to know about a currency (or any other trading instrument) is contained within the price. I have tried to subscribe to this theory in the past put keep on abandoning it. I've finally concluded that there is no harm at all in having a basic grasp of the fundamental environment in which you are trading. I am pretty much a technical trader only, but I have a decent feel for whats going on generally in a fundamental sense.

I tend to think that to trade without knowing anything about the fundamentals is like being unaware of the atmosphere or sentiment surrounding what you trade. You are in essence watching a crowd of people after all, so it is wise to get a feel for the vibe. My attitude is that any trade you make should simply make sense relative the fundamental picture at the time. You should have some clue as to what you are doing, even if it is being a contrarian.

The fundamental picture builds up and changes color slowly, and its not like you need to become a Phd in economics. The price action changes like the daily weather, but the fundamentals change like the seasons. Is it summer or winter in the market you trade?

I find that simply subscribing to a quality newsletter that tells the story (all be it after the fact) is enough to be able to allow one to tune in to the general sentiment. If newsletters and such like do anything well, it is telling the story after the fact. I usually ignore their reporting of why price made any particular move, but tune into the bigger picture that underlies it all.

The most important thing obviously is the pure economic data (major releases) minus any commentary. Newsletters are good at filling you in on any other happenings, but I would advise one to ignore completely both their technical and fundamental predictions. One can use media vibe as a gauge of overbought and oversold conditions, as classically they tend to become hysterical at extremes and its a good time to become cautious.

Watch the major releases, and keep one ear open regarding other major happenings in the financial world - thats all you need.

Tops and Bottoms

Its taken me this long to even begin to see how picking tops and bottoms is an ingrained state of mind; it is not just a trading activity you do. It really comes down to live experience with the market; the constant learning that it can do things you thought it couldn't possibly do. You think something is impossible in the market, and then it does it and more for good measure.

Lets take oil, right now trading at $125 a barrel the last time I looked. I remember not long ago when it was banging its head on 100 bucks a barrel and to me then that seemed high, but now it seems low! What changed? The price changed, and my personal perception of high and low has changed.

The point I'm trying to make is that to sit at a chart with a bias regarding whats high and low means you are subconsciously picking tops and bottoms whether you are aware of it or not. If you thought $100 was high for oil, you were probably thinking "can't go higher! can't go higher!" until one day there you are sitting at $125, and probably still thinking "surely can't go higher now!"

A top and bottom picker always thinks that the end has finally arrived.

I've found that a good practice when you feel like price can't go higher is to WILL IT to go higher instead of resisting it (or lower). This is just for the sake of flipping your bias on its head, and thus you are not in a counter trend frame of mind. $125 a barrel? I say go for $130! Hell lets go for $150! $200!!! $250!!!

(see the difference as opposed to "can't go higher!!")

If you are trading a trend, you should be PRO that trend and not nervously looking for it to terminate. Looking back on my own trading I would be long but internally looking for the top (i.e. short) and visa versa. My belief was opposite to what i was doing.

Ideally of course one would be free of such biases and just act on what happens instead of projecting any feeling of high and low on the market (the trading state of "mental purity") - after all thats the point of it. The market is deciding whats high and low, not you, so why have an opinion at all?

Bargain of the Century?

Is this the outragous bargain it appears to be? Check it out - $99 bucks a YEAR (i.e. the price of one crap forex system), and you get access to thousands of trading videos online that are often 90 minutes long. Check out some of the titles.

http://tv.ino.com/

Anyone used this service? I haven't looked at it yet but it seems like a great deal.

Book Review

A Complete Guide to Technical Trading Tactics - John L. Person

I was a bit concerned when I started this book that it would be pretty blah... But then the author had quite and impressive trading history so I was optimistic. In the end however, this book was pretty much, well, blah....

I realized today that what makes a GREAT trading book tends to be its lucidity, where as a bad trading book tends to waffle. I ended up skipping large portions of this book - you know you get to a chapter called something like "So, what are pivot points? Pivot points are points of potential support and resistance and.........blahdy blah blah blah" and you just can't force yourself to plow through it.

He did however give me the idea to look into one trading concept I forgot about, and he had an interesting chapter on options. Its probably an ok book for beginners, but its pretty damn generic. I will casually toss it in the blah pile.

Now on with my sprint to this : Japanese Candlestick Charting Techniques by Steve Nison. This is regarded as THE book on candles. I've got a lot of stuff on this subject and I intend to go hardcore on it for a bit. I even have Steve Nisons lecture that he did at the CBOT which I never have sat through yet.

Why review junk?

Marcoa says - "I don't understand why you keep buying or reviewing these things. In earlier posts you seem aware that they are junk. Reviewing or even mentioning this crap, reduces your credibility. You can't focus on testing your own method inside and out, if you keep looking elsewhere (in garbage cans) for greener pastures. Don't mean to sound harsh, but this junk makes my blood boil. The only reason to study these system sellers, is if you're thinking of marketing your own version of the 'secret knowledge'."

The main way I maintain credibility is by doing what ever I want no matter who's skin it gets under. But that aside...

...a blog is about information. Each new review adds to a growing catalogue of information that this blog provides to a new visitor. My purpose in starting it was to (in part) record a factual record of what it really takes to become a trader and at the same time learn about everything thats going on in the trading "universe" so to speak. Wading through the mountain of lies, rip-offs and scams appears to be a part of the process that everyone goes through, as is learning how they operate.

Remember that that side of the trading universe relies on a regular supply of new traders to replace the old ones who washed out. Where does someone get real information? I say the blogging side of trading is probably the only place to really get the facts.

So if someone comes to this blog they are not dealing with a person who has anything to gain marketing wise; nothing to sell. Therefore if I review anything you can be sure its a factual review, either of a book, product, or course. I like writing reviews by the way - its fun.

Of course I am not studying them to copy them, thats absurd. The right way to look at it is that due to the outrageousness of the system sellers marketing, from a writers perspective these guys are "fair game."

Product Review - "Cracking the Forex Code"

http://www.crackingforexcode.com/

THE CLAIM: "Insider Risks It All... To Reveal Forbidden, Downright Evil Tactics That Exploit A Million-Dollar Forex Loophole... ...And A Fool-Proof Step-by-Step Trading System You Can Copy To Cash In.... Each and Every Day..."

SELLING ANGLE : Insider "Secret Knowledge"

Seller claims to have managed to infiltrate an inner circle of elite professional traders, and once in he quote "spied on them" to copy their tactics. Claims this system is like a quote "ATM in your living room that cranks out cash on demand."

WHAT YOU GET :

Product is a single PDF, 24 pages long that contains two systems.

First system uses 3 EMAs. When all three EMA's are going in the same direction, you wait for a pullback and then buy/sell.

Second system uses 2 EMA's and Parabolic Sar. When 2 EMA's cross and SAR is in the right direction you buy/sell.

Money management rules consist of stop size on rules, plus one sentence telling you never to risk more than 1% of your account.

MY THOUGHTS :

To be fair to the seller, I have never forward tested these rules so I cannot say that this system is not the amazing cash cow he claims it is - but my overall gut reaction that this system is no better than anything you can get for free on forex factory. Is it likely that his story is true, or just marketing BS? Is it likely that an elite group of professional traders allowed this individual into their "special group" and reveal systems such as this as their hidden secret? You make up your own mind.

The sellers RELY on the fact that most people do not ask for their money back but rather just chalk up their disappointment to experience. I have many of the current top selling systems in my posession and when I get time I intend to review them all.

Traders Paradise

Check out the new blog I added on my top blog list - Traders Paradise. Its run by a trader who is pissed off with Woodies CCI club and he is basically waging war on them. Whether the accusations are true or false I dunno, but its a hilarious read; I'm loving every minute of it.

Book Review

Beyond Technical Analysis - Tushar S. Chande

Some books land fair and square in the 'advanced' category, and this is one of them. Its a very good book but deals with some of the more difficult concepts in trading. This is by no means a beginners book, but is very relevant to those who are into the nuts and bolts of true system development and testing. Is it a classic? Yes, it sort of is - its in the same vein as the very good book "Trading Systems that Work" by Thomas Stridsman although perhaps not quite so thorough. But if you're not into maths and statistical analysis, this may book might not be your idea of a walk on the wild side.

Now onto this:

A complete guide to Technical Trading Tactics by John L Person. My first impression flicking through was that this book was going to be all hot air, telling you everything you can find on the net for free - the obligatory explanation about Japanese Candlesticks which I'm so sick of seeing, but so far its not. The author has had a significant and interesting trading career and thus far its a good read.