Monday, October 17, 2011
Stock index futures signal higher open
(Reuters) - Stock futures pointed to a higher open for equities on Wall Street on Monday after strong gains in the previous session, with futures for the S&P 500, the Dow Jones and the Nasdaq 100 up 0.7 to 0.9 percent.
New York Federal Reserve releases its Empire State Manufacturing Survey for October at 1230 GMT. Economists expect a reading of -4.00 compared with -8.82 in September.
The Federal Reserve releases industrial production and capacity utilization data for September at 1315 GMT. Economists expect a 0.2 percent increase in production and a reading of 77.5 percent for capacity utilization. In August, production rose 0.2 percent and capacity utilization was 77.4 percent.
European stocks markets/index?symbol=gb%21FTPP">.FTEU3 rose 1.2 percent early on Monday, extending their brisk recovery rally into a third week, as investors rushed back into equities on mounting expectation of a bold plan to fight the euro zone debt crisis at next weekend's European Union summit.
The world's leading economies pressed Europe on Saturday to act decisively within eight days to resolve the euro zone's sovereign debt crisis, which is endangering the world economy.
Greece's debt crisis cannot be solved without larger writedowns on Greek debt, and governments are trying to persuade banks to accept this, German Finance Minister Wolfgang Schaeuble said on Sunday.
U.S. stocks scored their first back-to-back weekly gains since early July on Friday, on strong Google (GOOG.O) earnings and as investors kept riding the optimism for a solution to the euro zone's debt crisis.
The Dow Jones industrial average finance/markets/index?symbol=us%21dji">.DJI closed up 166.36 points, or 1.45 percent, at 11,644.49 on Friday. The Standard & Poor's 500 Index .SPX ended up 20.92 points, or 1.74 percent, at 1,224.58. The Nasdaq Composite Index .IXIC rose 47.61 points, or 1.82 percent, to 2,667.85.
Japan's Nikkei average .N225 gained 1.5 percent on Monday.
Sunday, October 16, 2011
, On Sunday October 16, 2011, 1:02 pm
NEW YORK (AP) -- 2011 was shaping up to be a washout for the stock market just two weeks ago. Now, it's within shouting distance of its biggest comeback in nearly three decades.
The Standard and Poor's 500 index has jumped 11.4 percent since hitting its lowest level of the year on Oct. 3, largely because investors have become more confident that Europe will shelter its banks from huge losses on Greek bonds should that country's government stop making payments on its debt. For much of the summer, investors feared that a Greek default could lead to a freeze of lending between European banks and cascade into a credit crisis similar to the one in 2008.
The S&P 500 was down 12.6 percent for the year as of Oct. 3, when it closed at 1,099. As of Friday, it had trimmed the loss to 2.6 percent. It needs to gain just 33 points, or 2.8 percent, to get above 1,257, where it started the year.
If the S&P 500 finishes the year with a gain, it will be the biggest turnaround since 1984. That year, Apple Inc. introduced the Macintosh, and President Ronald Reagan's campaign ads proclaimed that it was "Morning Again in America." It was also the last time that the S&P 500 fell more than 10 percent during a calendar year and finished the year in the black. The index finished that year up 1.4 percent.
Edging out another gain of that size in 2011 wouldn't make anyone rich. But consider the hand that investors were dealt this year: A tsunami and nuclear disaster in Japan plunged the world's third-largest economy into a recession and created a worldwide parts shortage. Uprisings throughout the Arab world sent the price of gas skyrocketing to an average of $3.98 a gallon in May. The U.S. lost its top-notch credit ranking for the first time. And Europe has teetered on the edge of a financial crisis that could hobble the region's banking system.
With all of that going on, investors might wonder how the S&P 500 index could possibly end the year higher than where it started. The biggest reason: some think stocks may be the best value out there.
With dividend payments alone, the S&P index offers a return on par with low-risk U.S. Treasurys. From Aug. 24 through Thursday, the yield on the 10-year Treasury note was below the dividend yield of the S&P 500 index. Since 1962, the only other time that's happened was during the 2008 credit crisis, according to J.P. Morgan.
"You have to have pretty dark thoughts to think that there's not a chance that the S&P 500 beats out Treasurys at this point," said Bill Stone, chief investment strategist at PNC Bank.
Stone also thinks company earnings are going to be better in the third quarter than many analysts expect, driving stock prices higher. Since July, analysts have cut back their estimates for the S&P 500's third quarter earnings 3 percent because of concerns that the U.S. economy might be heading into a recession. Since then, retail sales, applications for unemployment benefits, and the number of jobs added in August have been better than Wall Street expected. "The market has been priced for the worst, but that's not bearing out in reality," Stone said.
Others point to the fact that the S&P 500 was stuck in a narrow trading range since Aug. 4th. That day, the index fell below 1,260 during a broad sell-off. The stock market has moved up and down a lot since then, but hasn't really gone that far. The S&P 500 has mainly traded between 1,099 and 1,218, a relatively small band. On Friday it broke out of that range, closing at 1,224.
Investors who buy and sell the S&P 500 index based on analyzing patterns in charts -- known on Wall Street as technical traders -- believe that indexes will tend to keep moving steadily in the same direction once they break out of a trading range. That's because investors tend to follow the herd. Increased confidence in Europe's ability to prevent a widespread financial crisis may help the S&P 500 move out of that range and stay there.
"If we have truly averted the worst of Europe then a large dark cloud is going to be lifted off of this market and momentum is going to take over," said Richard Ross, global technical analyst at Auerbach Grayson.
Seasonal investor behavior might also lift the S&P 500. The S&P index typically gains an average of 3.9 percent during the last three months of the year. "Positive market psychology hits a fever pitch as the holiday season approaches and does not begin to wane until the spring," according to the Stock Trader's Almanac. Professional investors also tend to readjust their portfolios at this time of year, buying stocks that have done well and selling those which have fared poorly for tax purposes.
That could have a greater than usual effect this year because the S&P 500 remains cheap, analysts say. At the start of the year, the S&P 500 traded at 15 times its earnings over the last 12 months. That was below the average price-to-earnings multiple of 18.6 over the last 10 years. Friday, the S&P 500 traded at 12.9 times earnings.
It's not quite time to count on gains, however. The S&P 500 has fallen more than 10 percent 43 times since 1900, according to Sam Stovall, chief equity analyst at Standard & Poor's. It finished the year with a gain only 11 times, a comeback rate of 26 percent. The average gain in those years was 1.8 percent.
"I'm skeptical of this rally," Stovall said, noting that Europe's debt problems still aren't solved. "But even if there is a gain, history says that you're not going to end up with anything to be too excited about."
Steve Jobs and the 7 Rules of Success
1. Do what you love. Jobs once said, "People with passion can change the world for the better." Asked about the advice he would offer would-be entrepreneurs, he said, "I'd get a job as a busboy or something until I figured out what I was really passionate about." That's how much it meant to him. Passion is everything.
2. Put a dent in the universe. Jobs believed in the power of vision. He once asked then-Pepsi President, John Sculley, "Do you want to spend your life selling sugar water or do you want to change the world?" Don't lose sight of the big vision.
3. Make connections. Jobs once said creativity is connecting things. He meant that people with a broad set of life experiences can often see things that others miss. He took calligraphy classes that didn't have any practical use in his life -- until he built the Macintosh. Jobs traveled to India and Asia. He studied design and hospitality. Don't live in a bubble. Connect ideas from different fields.
4. Say no to 1,000 things. Jobs was as proud of what Apple chose not to do as he was of what Apple did. When he returned in Apple in 1997, he took a company with 350 products and reduced them to 10 products in a two-year period. Why? So he could put the "A-Team" on each product. What are you saying "no" to?
5. Create insanely different experiences. Jobs also sought innovation in the customer-service experience. When he first came up with the concept for the Apple Stores, he said they would be different because instead of just moving boxes, the stores would enrich lives. Everything about the experience you have when you walk into an Apple store is intended to enrich your life and to create an emotional connection between you and the Apple brand. What are you doing to enrich the lives of your customers?
6. Master the message. You can have the greatest idea in the world, but if you can't communicate your ideas, it doesn't matter. Jobs was the world's greatest corporate storyteller. Instead of simply delivering a presentation like most people do, he informed, he educated, he inspired and he entertained, all in one presentation.
7. Sell dreams, not products. Jobs captured our imagination because he really understood his customer. He knew that tablets would not capture our imaginations if they were too complicated. The result? One button on the front of an iPad. It's so simple, a 2-year-old can use it. Your customers don't care about your product. They care about themselves, their hopes, their ambitions. Jobs taught us that if you help your customers reach their dreams, you'll win them over.
There's one story that I think sums up Jobs' career at Apple. An executive who had the job of reinventing the Disney Store once called up Jobs and asked for advice. His counsel? Dream bigger. I think that's the best advice he could leave us with. See genius in your craziness, believe in yourself, believe in your vision, and be constantly prepared to defend those ideas.
Saturday, October 15, 2011
4 defensive strategies for anxious investors
Commentary: Reading into a headline-driven stock market
By Michael Sincere
MIAMI, Fla. (MarketWatch) — If you’ve been following the market,
you know that it’s resembled a wild roller coaster ride. Although selling in May
was exactly the right move, when to get back in is less certain.
At the moment, the charts look dreadful: the major stock indexes are well below their moving averages, and other technical indicators signal dangerous conditions. For insights into this volatile market, I spoke with trader Toni Turner, author of The Beginner’s Guide to Day Trading Online (2nd Edition).
A few months ago, Turner noticed that the market was changing for the worse.
Volatility knocks
Many people falsely believe that all this volatility is good for day traders. In fact, it’s difficult to make money when the market is making double- and triple intraday reverses. “Even one rumor can make the market turn on a dime,” Turner said. “We now have a headline-driven market, and it’s not based on the fundamentals of a sound economy.”
Because of the extreme volatility, it’s often difficult for traders to book profits. “For example, if there is a rumor that China is buying Italian bonds, the market shoots up,” Turner said. “The next day, traders discover the rumor is false and the market falls. Traders who are close to the information have already gotten out.”
When the market is this confused, Turner suggested a number of defensive strategies to use:
1. Determine who is the ‘boss du jour’
There’s always an underlying force that influences market direction. Identifying what is moving the market can help you be on the right side of the trade.
“My strategy is to establish what dynamic is leading the market,” Turner said, targeting what she calls the “boss du jour.” In the past, oil led the market, and often it’s the S&P 500 Index /quotes/zigman/3870025 SPX +1.74% or Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +1.45% futures.
“Right now the euro is the boss,” Turner said, “and it’s having a rough time. If the euro moves down, the market will often follow.” In the old days, U.S. traders didn’t pay much attention to the global markets, and few paid attention to the European Central Bank or unemployment in Germany. Now it’s a global market, and astute traders study world headlines for clues.
2. Use charts to identify congestion
One of the most basic skills in technical analysis is learning to identify confusion, or congestion.
“Congestion on a chart is a series of stops and starts on a chart,” Turner said. “Right now we see this congestion on stocks that are normally docile. I can’t relate this to any recent period in history. It’s a mess. If you look at the defensive ETF sectors such as XLU /quotes/zigman/246354/quotes/nls/xlu XLU +0.03% (Utilities SPDR), it’s usually a yawn, but when it’s acting like a tech stock, you have to wonder what is going on. Some of these stocks look like a kangaroo on speed.”
3. Avoid overpriced growth stocks
Although Turner is a trader, she studies stock fundamentals such as the P/E
ratio, debt levels, and earnings.
“Don’t buy an overpriced growth stock with bad fundamentals,” she said. “These stocks were probably ‘bid up’ by traders. More than likely, there are hedge funds just waiting to short them on the next market downturn.”
Turner suggests taking a look at value stocks, especially if you are bottom picking. “Value stocks don’t usually get hammered as badly as growth stocks, when we experience a downturn.”
“Don’t buy an overpriced growth stock with bad fundamentals,” she said. “These stocks were probably ‘bid up’ by traders. More than likely, there are hedge funds just waiting to short them on the next market downturn.”
Turner suggests taking a look at value stocks, especially if you are bottom picking. “Value stocks don’t usually get hammered as badly as growth stocks, when we experience a downturn.”
4. Pay attention to chart patterns
Not everyone believes that chart patterns are useful, but Turner disagrees.
“Patterns are human behavior on a screen,” she said. “Greed, fear, optimism, and anxiety are displayed. So when I see a bear flag pattern with wide candles being drawn on a chart with big gaps, it tells me the people trading this stock are confused and in disagreement. This is what I see on the SPY right now, and it’s been like this since August.”
Parting words
For now, Turner suggests that rookie traders stand aside and take a breather. “It’s a difficult, headline-driven market. If you’re wise and try not to outthink the market, you can remain in cash for now. When the market starts to go our way again, you’ll have money to trade.” Read more of my interview with Toni Turner
When the market is this confused, staying on the sidelines makes sense. The war between the bulls and bears continues, and eventually one side will win. Until then, patient traders must wait for an opportunity to pounce. Unfortunately, that opportunity has not yet arrived.
Michael Sincere ( www.michaelsincere.com ) is the author of a number of investment and trading books such as Understanding Options, and just published his first novel, The Last Au Pair.
While the world is busy facing with the economic troubles confronting those concerns, let's analyze the market how we can find opportunities.
From this daily chart (YM) which is the e-minis futures of the Dow Jones, we cannot really predict where it is headed. It is either bulls today, bears tomorrow, or the idles.
Let the Wall Street occupiers do their thing, for us traders (in home) as long as there is the market the exploration (or exploitation?) of opportunities will always be there. Sorry to disappoint the protesters (or the occupiers?), Wall Street will always be there.
So from this chart, the only way you can exploit the opportunities is to watch the market daily and form trading ideas to find a good location to trade.
The market is in the sideways range now for the past two months and no one can predict what's going to happen due to the unpredictable events that is coming from anywhere in the planet. The market is now driven by the news if not the rumors.
As they say, buy the rumors sell the news or make it vice versa, That depends on how you interpret the market.
That's why trading is all about your own understanding and interpretation of the market. No one can help you to trade the market profitably, except (you) the trader itself.
There is a tendency the market might stall by Monday or for a few days more then it will thrust to the next support/resistance at 12000. I don't think it will go down further from 10500 unless the Fed will take inutile action.
Trading is all about watching the market, as the saying goes..."I made my money in trading by watching and sitting tight". That may be true, but sitting and waiting is the most boring time in trading that's why few are having the patience to succeed especially in trading.
From this daily chart (YM) which is the e-minis futures of the Dow Jones, we cannot really predict where it is headed. It is either bulls today, bears tomorrow, or the idles.
Let the Wall Street occupiers do their thing, for us traders (in home) as long as there is the market the exploration (or exploitation?) of opportunities will always be there. Sorry to disappoint the protesters (or the occupiers?), Wall Street will always be there.
So from this chart, the only way you can exploit the opportunities is to watch the market daily and form trading ideas to find a good location to trade.
The market is in the sideways range now for the past two months and no one can predict what's going to happen due to the unpredictable events that is coming from anywhere in the planet. The market is now driven by the news if not the rumors.
As they say, buy the rumors sell the news or make it vice versa, That depends on how you interpret the market.
That's why trading is all about your own understanding and interpretation of the market. No one can help you to trade the market profitably, except (you) the trader itself.
There is a tendency the market might stall by Monday or for a few days more then it will thrust to the next support/resistance at 12000. I don't think it will go down further from 10500 unless the Fed will take inutile action.
Trading is all about watching the market, as the saying goes..."I made my money in trading by watching and sitting tight". That may be true, but sitting and waiting is the most boring time in trading that's why few are having the patience to succeed especially in trading.
Wild Market Ride Is Driving People out of Stocks
Just how turbulent is the stock market? More than half a trillion dollars in paper gains were made and lost within just two weeks in September. The S&P 500 jumped 5 percent in the week ending Sep. 16, the second best week this year. The next week it plunged 6 percent, the second worst week this year.
The wild swings have made many wary of putting money in the stock market. "It's like an elevator with only two buttons," said Jeffrey Sica, president of Sica Wealth Management. "If you see one button says 'surge' and the other says 'plunge,' you're not going to get on the elevator."
In market-speak, it's called volatility: Large jumps followed by deep dives, within the course of a week or sometimes the same day. The surge in volatility since early August has been blamed for preventing companies from going public and scaring people out of stocks. Some think that even if Europe resolves its debt crisis, large price swings are here to stay.
In August, many put part of the blame for that month's volatility on the summer vacation season. Come September, they said, more people will be at their desks buying and selling, making it harder for large orders to rattle the market when trading volumes are thin. That turned out to be half right: Trading volume has picked up since Labor Day, but the stock market looks far from calm.
"What was wrong with the vacation idea is that Europe didn't get any better when people got back to work," said Nick Colas, chief market strategist at BNY ConvergEx Group. "People are still focused on the same clear and present dangers."
To get an idea how volatile the market has been, consider:
— The Dow Jones industrial average has gained or lost more than 200 points in a trading day 16 times since the start of August. Six of those days came in September. In the first seven months of the year, that happened just four times.
— The long-term trend is toward more volatility. Judging by the number of times in a year the S&P 500 swung 2 percent or more in a single day, markets are much more likely to have large leaps up or dives down, according to S&P's equity research group. Swings of 2 percent occurred an average of five times a year from 1950 to 1999. It's already happened 20 times this year, with three months left to go.
The heavy turbulence that started in August is the main reason why no company has managed to pull off an initial public offering since the Chinese online video website Todou Holdings went public Aug. 16. The backlog of companies waiting to debut in an IPO has never been larger.
"All the volatility has made for an unfavorable IPO environment," said Claude Courbois, managing economist at Nasdaq OMX's research department. "An IPO is your coming out party, a chance to tell your story. You don't want an enormous amount of uncertainty surrounding it."
Analysts say it's also the chief reason Americans are fleeing the stock market as if it's 2008 all over again. Retail investors pulled $36 billion out of U.S. stock funds in August, according to preliminary data from the Investment Company Institute. That's second only to the $47 billion withdrawn from U.S. stock funds at the height of the financial crisis in October 2008.
"The swings themselves have eroded the confidence of investors," said Jeff Kleintop, chief market strategist at LPL Financial. "It's the sign of a market and an economy not on sound footing."
Sica, the wealth manager, told his clients to leave no more than 10 percent of their savings in stocks at the end of May on the belief that markets would slide as the Federal Reserve's efforts to help the economy came to an end in June. The stock market's drop since then has failed to lure Sica and his clients back in. In fact, he's told his clients to get the rest of their money out.
In the past, a rally like the 5 percent one in the week ending Sep. 16 would be enough to cause Sica's phone to ring with calls from clients wanting to shift more money into stocks. "They'd have the sense their missing out on something," Sica said. In recent weeks, stock market surges are followed by clients calling to say "'Please keep me out,'" he said.
"This is the first time in 20 years that I'm totally out of stocks, unfortunately. Just because something declines, it doesn't mean it will ever come back."
Just how turbulent is the stock market? More than half a trillion dollars in paper gains were made and lost within just two weeks in September. The S&P 500 jumped 5 percent in the week ending Sep. 16, the second best week this year. The next week it plunged 6 percent, the second worst week this year.
The wild swings have made many wary of putting money in the stock market. "It's like an elevator with only two buttons," said Jeffrey Sica, president of Sica Wealth Management. "If you see one button says 'surge' and the other says 'plunge,' you're not going to get on the elevator."
In market-speak, it's called volatility: Large jumps followed by deep dives, within the course of a week or sometimes the same day. The surge in volatility since early August has been blamed for preventing companies from going public and scaring people out of stocks. Some think that even if Europe resolves its debt crisis, large price swings are here to stay.
In August, many put part of the blame for that month's volatility on the summer vacation season. Come September, they said, more people will be at their desks buying and selling, making it harder for large orders to rattle the market when trading volumes are thin. That turned out to be half right: Trading volume has picked up since Labor Day, but the stock market looks far from calm.
To get an idea how volatile the market has been, consider:
— The Dow Jones industrial average has gained or lost more than 200 points in a trading day 16 times since the start of August. Six of those days came in September. In the first seven months of the year, that happened just four times.
— The long-term trend is toward more volatility. Judging by the number of times in a year the S&P 500 swung 2 percent or more in a single day, markets are much more likely to have large leaps up or dives down, according to S&P's equity research group. Swings of 2 percent occurred an average of five times a year from 1950 to 1999. It's already happened 20 times this year, with three months left to go.
The heavy turbulence that started in August is the main reason why no company has managed to pull off an initial public offering since the Chinese online video website Todou Holdings went public Aug. 16. The backlog of companies waiting to debut in an IPO has never been larger.
"All the volatility has made for an unfavorable IPO environment," said Claude Courbois, managing economist at Nasdaq OMX's research department. "An IPO is your coming out party, a chance to tell your story. You don't want an enormous amount of uncertainty surrounding it."
Analysts say it's also the chief reason Americans are fleeing the stock market as if it's 2008 all over again. Retail investors pulled $36 billion out of U.S. stock funds in August, according to preliminary data from the Investment Company Institute. That's second only to the $47 billion withdrawn from U.S. stock funds at the height of the financial crisis in October 2008.
"The swings themselves have eroded the confidence of investors," said Jeff Kleintop, chief market strategist at LPL Financial. "It's the sign of a market and an economy not on sound footing."
Sica, the wealth manager, told his clients to leave no more than 10 percent of their savings in stocks at the end of May on the belief that markets would slide as the Federal Reserve's efforts to help the economy came to an end in June. The stock market's drop since then has failed to lure Sica and his clients back in. In fact, he's told his clients to get the rest of their money out.
In the past, a rally like the 5 percent one in the week ending Sep. 16 would be enough to cause Sica's phone to ring with calls from clients wanting to shift more money into stocks. "They'd have the sense their missing out on something," Sica said. In recent weeks, stock market surges are followed by clients calling to say "'Please keep me out,'" he said.
"This is the first time in 20 years that I'm totally out of stocks, unfortunately. Just because something declines, it doesn't mean it will ever come back."
Friday, October 14, 2011
Is Trading Gambling ?
Not long ago, I was spending time with a friend of mine who I have been close with since we were children. For years, anytime my career comes up in conversation, he insists that trading is nothing more than gambling. I actually get this question from others at trading events as well. It is a very hard question for me to answer because I think the whole question is wrong.
Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level. The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the black jack table to try and make $10.00. Pepsi pays $1,000,000 (risk) for a commercial spot during the Super Bowl hoping to see a return (reward) on that investment much greater than the cost (risk) of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: "What type of speculator are you?"
Are you the type who only takes on risk when the odds are stacked in your favor, or are you the type that takes on risk when the opportunity "feels" right and "looks" good? My answer to my friend was simple. I said, yes, trading and gambling are very similar, but there is one big difference I told him. I said, "Imagine playing blackjack (21) and not having to put any money on the table until after you see the dealer's cards, and then being able to bet as much or little or even not bet at all. Furthermore, if you do place a bet, you can take all your money off the table whenever you want; THAT'S TRADING." In trading, we have the ability to only put our hard-earned money at risk when the odds are very much stacked in our favor. A casino would love to have the odds that the astute market speculator in the trading world is able to enjoy.
The issue is that most market speculators can't tell the difference between risk and opportunity. In fact, most get it completely backwards which is great for the astute market player. This novice group continuously falls for the illusion trap that disguises risk as opportunity. Why is this the case? In my opinion, it's a combination of human emotion and just plain old laziness. People tend NOT to want to put in the hard work and reality-based thinking it takes to develop the market skills needed to get paid from the "un-skilled." There are no short-cuts. If someone is not interested in putting in the hard work it takes to attain proper trading skills, profitable trading opportunities will equally not be interested in them. The most rewarding opportunities always go to those who enjoy working hard and who engage in out-of-the box thinking, not those who lack interest in hard work.
I have written on many occasions, that the movement of price in any and all markets is simply a function of a pure supply and demand equation that is easily quantifiable on price charts if you know what you're looking for. Low risk, high reward, and high probability opportunity is present when this simple and straight-forward equation is "out-of-balance."
If you are a trader who risks your trading account on the inconsistent whims of random chance, you are likely the trader trying to cut corners and find short-cuts to trading success. In "compensation" the world over, everyone gets EXACTLY what they deserve. Life has a masterful way of evening the score. Your pay-back is eventually equal to your physical and mental efforts. If you're not motivated to develop the needed skill set, you will likely transfer your account over to someone's account who is. I have been in this business for many years. Trust me, if there was a short-cut to trading success, I would have found it.
You see, whether you are a trader, a company like Pepsi, a retail store owner, or one of the others, all that really matters is the type of speculator you are. Those who invest the time and energy required to attain a rule-based strategy that locks them into low risk / high reward profits simply get paid from those who don't. The reality is that this is how the world works so let's begin to qualify the difference between some higher probability trading opportunities and lower ones, as knowing the difference is a key to success.
A market situation we are often faced with is a gap. We can use a simple checklist based on objective information to determine exactly what action to take (or not to take). The checklist helps us determine the probabilities, risk and reward. Here is how some of it can work:
In a downtrend, selling short on a gap higher into supply is likely the highest probability trading opportunity there is. This is because only your most novice trader would buy after a gap up in price, into a supply level, and in the context of a downtrend. Therefore, we want to be the seller to that buyer which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.
Scenario 2- Gap down into an objective demand (support) level
One might think a gap down into demand is a buying opportunity right on the open of trading each time we see it. However, when we consider this action in a downtrend, this trading idea becomes a bit lower probability. While this gap is likely to fill and almost always does, it typically takes a bit longer than gap scenario #1.
This gap up into supply is a trading opportunity that we consider shorting as long as the risk is low and reward (target) is high. However, this is not one of our highest probability trading opportunities because we are shorting in the context of an uptrend. This gap will typically fill within the day or soon after, but the higher probability gap trade to take in the context of an uptrend is scenario #2.
Scenario 4 - Gap down into an objective demand (support) level
In an uptrend, buying on a gap down into demand is likely the highest probability trading opportunity there is. This is because only your most novice trader would sell after a gap down in price, into a demand level and in the context of an uptrend. Therefore, we want to be the buyer to that seller which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.
If you have not figured it out yet, the key factor in determining which gap scenario offers us the greatest odds is a direct function of identifying who is making the biggest mistake. Someone buying a gap up, into supply (resistance), and in the context of a downtrend is making a very big mistake which means they are buying when the odds are stacked against them.
Therefore, we want to take the high probability trade and be the seller to that novice buyer and bet on a downside move. To summarize, the two highest probability gap trades are selling short when there is a gap up into supply in a downtrend and to buy on a gap down into demand in an uptrend. Of course, there is a little more to it than that when it comes to the exact entry. With any of these scenarios, the risk must be low and the reward must be high and this is objectively determined off of the price chart alone.
Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level. The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the black jack table to try and make $10.00. Pepsi pays $1,000,000 (risk) for a commercial spot during the Super Bowl hoping to see a return (reward) on that investment much greater than the cost (risk) of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: "What type of speculator are you?"
Are you the type who only takes on risk when the odds are stacked in your favor, or are you the type that takes on risk when the opportunity "feels" right and "looks" good? My answer to my friend was simple. I said, yes, trading and gambling are very similar, but there is one big difference I told him. I said, "Imagine playing blackjack (21) and not having to put any money on the table until after you see the dealer's cards, and then being able to bet as much or little or even not bet at all. Furthermore, if you do place a bet, you can take all your money off the table whenever you want; THAT'S TRADING." In trading, we have the ability to only put our hard-earned money at risk when the odds are very much stacked in our favor. A casino would love to have the odds that the astute market speculator in the trading world is able to enjoy.
I have written on many occasions, that the movement of price in any and all markets is simply a function of a pure supply and demand equation that is easily quantifiable on price charts if you know what you're looking for. Low risk, high reward, and high probability opportunity is present when this simple and straight-forward equation is "out-of-balance."
If you are a trader who risks your trading account on the inconsistent whims of random chance, you are likely the trader trying to cut corners and find short-cuts to trading success. In "compensation" the world over, everyone gets EXACTLY what they deserve. Life has a masterful way of evening the score. Your pay-back is eventually equal to your physical and mental efforts. If you're not motivated to develop the needed skill set, you will likely transfer your account over to someone's account who is. I have been in this business for many years. Trust me, if there was a short-cut to trading success, I would have found it.
You see, whether you are a trader, a company like Pepsi, a retail store owner, or one of the others, all that really matters is the type of speculator you are. Those who invest the time and energy required to attain a rule-based strategy that locks them into low risk / high reward profits simply get paid from those who don't. The reality is that this is how the world works so let's begin to qualify the difference between some higher probability trading opportunities and lower ones, as knowing the difference is a key to success.
A market situation we are often faced with is a gap. We can use a simple checklist based on objective information to determine exactly what action to take (or not to take). The checklist helps us determine the probabilities, risk and reward. Here is how some of it can work:
Downtrend:
Scenario 1- Gap up into an objective supply (resistance) levelIn a downtrend, selling short on a gap higher into supply is likely the highest probability trading opportunity there is. This is because only your most novice trader would buy after a gap up in price, into a supply level, and in the context of a downtrend. Therefore, we want to be the seller to that buyer which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.
Scenario 2- Gap down into an objective demand (support) level
One might think a gap down into demand is a buying opportunity right on the open of trading each time we see it. However, when we consider this action in a downtrend, this trading idea becomes a bit lower probability. While this gap is likely to fill and almost always does, it typically takes a bit longer than gap scenario #1.
Uptrend:
Scenario 3 - Gap up into an objective supply (resistance) levelThis gap up into supply is a trading opportunity that we consider shorting as long as the risk is low and reward (target) is high. However, this is not one of our highest probability trading opportunities because we are shorting in the context of an uptrend. This gap will typically fill within the day or soon after, but the higher probability gap trade to take in the context of an uptrend is scenario #2.
In an uptrend, buying on a gap down into demand is likely the highest probability trading opportunity there is. This is because only your most novice trader would sell after a gap down in price, into a demand level and in the context of an uptrend. Therefore, we want to be the buyer to that seller which means the odds are stacked in our favor. This type of gap is likely to get filled very quickly.
If you have not figured it out yet, the key factor in determining which gap scenario offers us the greatest odds is a direct function of identifying who is making the biggest mistake. Someone buying a gap up, into supply (resistance), and in the context of a downtrend is making a very big mistake which means they are buying when the odds are stacked against them.
Therefore, we want to take the high probability trade and be the seller to that novice buyer and bet on a downside move. To summarize, the two highest probability gap trades are selling short when there is a gap up into supply in a downtrend and to buy on a gap down into demand in an uptrend. Of course, there is a little more to it than that when it comes to the exact entry. With any of these scenarios, the risk must be low and the reward must be high and this is objectively determined off of the price chart alone.
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