Archive for January, 2011

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Beware When Markets Enter Irrational Exuberance

Posted in education, price chart, technical indicator on 2011-01-31 by Strategesis

The market can remain irrational far longer than you can remain solvent. Only price pays; reasons, causes, fundamentals, Elliott Wave counts and technical indicators don’t.

From Safehaven.com:

Thank god markets are emotional, how else would we get fantastic over bought and under bought prices. The only trick for the investor is to know when prices are considered to be within a period ‘irrational exuberance’. Some use RSI and Stochastic, others use sentiment readings of confidence, option call put ratios and standard deviations from a long term moving average. Many of these tools have false readings and hence a combination is preferred when forming an opinion and unfortunately that normally end in a confused state of mind for the investor.

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Turning Points (Andre Gratian)

Posted in education, price chart, technical analysis, technical indicator on 2011-01-30 by Strategesis

From Safehaven.com:

The market may be at an important short-term juncture. Friday’s sell-off, after the SPX had reached the last interim target of 1301 — very near to its projected final destination of 1310-1312 — could mean that the end of the rally from 1173 (and perhaps from 1041) has taken place.

It is important to let the market speak for itself and not to jump to premature conclusions. As of Friday’s close, only a near-term (interim) sell signal had been given. More weakness and a daily close below 1270 will be needed to signify that a short-term top has been reached.

Continued

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Stock Market Tops at Technical Resistance?

Posted in price chart, technical analysis, technical indicator on 2011-01-30 by Strategesis

From Safehaven.com:

$SPX Daily: There’s a lot of great technical data in the daily chart. Thursday was the Fib. 144 day from the July 2010 low. We also have some similarities brewing in this high compared to the April 2010 top: look at the April high and we see price making a high and then going through a one day sell off then advancing for 5 days into a minor new high while creating a divergence on the RSI. In the past several days we have the same structure. And on both occasions, the market pushed the RSI into 70 for a month. Now look at the pitchfork lines, the April high finished right on the middle line. The January high is finishing by back testing the lower line. If this is the market high I’m looking for the correctional phase to continue next week. The lower BB and 50 day MA is the first support area. Price support in blue is major support.


Continued

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The 7 Deadly Sins of Trading — And How To Overcome Them

Posted in education, trader psychology on 2011-01-29 by Strategesis

From E-MiniWatch.com:

Remember the 1995 movie Se7en with Brad Pitt, Morgan Freeman and Gwyneth Paltrow? A serial killer is on the loose, picking his victims because they represent the worst of human behavior – the Seven Deadly Sins. There are murders to punish Greed, Gluttony, Sloth, Lust, Pride and finally Envy and Wrath in the final scene.

Well, when it comes to trading, I’ve got my own list of worst trading behavior – my own 7 Deadly Sins of Trading if you like:

1. Trying to pick tops or bottoms (“Billy, Don’t Be a Hero” playing in my head)
2. My gut says we’re going to break out (Professionals love fading breakouts)
3. No confirmation from my Volume indicators (wait for everything to line up)
4. Hesitating on entry (typically when the trade is “hard” to take)
5. Canceling my stop (OMG, the biggest Sin of them all!)
6. Moving my profit target (got to let the winners run)
7. Letting a profitable trade turn into a loser (luckily, a rarity)

Continued

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Predicting Economic Crises With ‘Econophysics’

Posted in technical analysis on 2011-01-29 by Strategesis

From Science Daily

Do physicists have better tools than economists or financial experts for predicting economic crises? Mainstream economists largely failed to forecast the sub-prime mortgage bubble, the ensuing financial crisis, and its global impact on world economy, which has now even challenged Europe’s economic, political and social systems. A handful of physicists working on economic problems — in the small but rapidly growing field of “econophysics” — have done better.

Continued

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Physics for Financial Markets

Posted in civil regulation, criminal law on 2011-01-29 by Strategesis

From Science Daily:

Top-down regulation of the system does not seem to be working. No institution has god-like insights and power: Frequently there is a lack of information and a delayed response. On top of increasing the level of bureaucracy, some of these policies may actually hamper the self-regulation of the markets. We now have a choice between continuing to operate on a detailed level, trying to control single factors by separate laws and bureaucratic structures, or concentrating on the design of the financial architecture and its interaction rules.

The authors strongly argue for the latter approach. Inspiration can be found in the theory of complex systems. This theory features a variety of methods and models which make it possible to understand and manage not only complex systems in physics and ecology, but social and economic systems as well.

Continued

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Sharp selloff in Shanghai Stock Index

Posted in price chart on 2011-01-17 by Strategesis

Daily price bars:

Click on chart for enlarged view

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TTW (“Trades That Work”): Puretick’s (Alex Wasilewski’s) Trading Strategies

Posted in advisory service, education, trading strategy, trading system on 2011-01-17 by Strategesis

From Puretick:

One of our goals at Pure Tick is to get you trading like a pro on your own! In addition to providing trading alert signals, much of your time in the service will be spent soaking up knowledge on the markets. We teach standard concepts such as support and resistance, candle formations, bounce points, market internal indications and various other profitable setups used by Alex…

In reality that is the only hope for the newbie to graduate to the ranks of the professional. I am sure most new traders have read a number of trading books where the author proposes or in many cases rehashes a “holy grail” trading setup. Many times they simply plagiarize and rename the method.

When the new trader finishes the book and starts trading the next morning, the results are worse than expected. Sadly for the new trader, many of these methods—Trend Following or Counter Trend–are not that bad. Many do have a positive expected outcome over time. We have found that most methods average about a 55% success rate if every signal is taken. What many new traders don’t realize is that a method with a 55% success rate can easily have 5 losing trades in a row. Very few new traders multiply the average stop loss of that particular “holy grail” method times 5 to even get an idea of what that method might lose right out of the gate.

The prime trading methodology we use at TTW, and what we aggressively suggest for the new trader is to trade with the main trend of the day, and yet to avoid chasing the move once the trend has been determined. By definition this means we buy when a new momentum high has been established but we wait for a pullback. The opposite applies to short trades.

Right away a reader might say, “Yes, lots of trading gurus do that. What makes you guys different?”

Continued

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January Declines Over the Past Decade 2000 Through 2010

Posted in technical analysis on 2011-01-17 by Strategesis

From Safehaven (Robert McHugh):

The schedule below shows an incredible history of repeated stock market behavior over the past eleven years, where the Dow Industrials topped and declined anywhere from 4.43 percent to as much as 29.81 percent at the beginning of every single year for eleven years in a row!

Continued

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Book recommendation: The Universal Principles of Successful Trading

Posted in book recommendation on 2011-01-06 by Strategesis

On Amazon:

Excerpt (p196, pp1):

Enlightenment

Developing and accepting a simple trading approach signifies that you have accepted an important reality about trading. It means you have reached that “zen” state of mind that understands there is no Holy Grail trading solution. It means you no longer feel the need to continue your never-ending search for the next trading idea. Acceptance of simplicity gives you both enlightenment and peace of mind.

It means you now understand and accept that no one can say for certainty where a market will head in the future, and you now accept there is no benefit in attempting to do so. It means you have realized that all you can control in your trading is the adoption of a sound trading logic and good money management. It means you now realize that you don’t have to know with certainty where a market is heading to make money trading. Embracing simplicity gives you real understanding.

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