Need help with Entries, Exits and Trade Management? Read on!
Need help with Entries, Exits and Trade
Management? Read on!
Don't get left behind!
This is only
Part One of a two part publication that
is broadcast each Sunday. Watch for Part Two!
There are also two daily trade follow ups every trading day,
one each from Erich and Tom, to
keep you abreast of what they see happening
and what they're doing in the markets.
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Traders Helping Traders E-zine for 7-30-06 - Part One | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Member Links | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Member Log-In: http://www.supportandresistance.com/THT/members/toc.html You will find a link to the Daily Updates in the Table of Contents. NOTE: If you bookmark this page you will be able to access the ezine each week on the site before the mails go out. You will need your username and password to do so. HotComm class as usual on Wednesday night at 9:30 pm EST. Relay3:MarketMover. See you Wednesday night! There is a mini tutorial on this page which should help answer most of your questions about using hotComm. We try to record the webinars whenever possible for those who can't attend, so watch the Support and Resistance Forum for links to view the movies. http://www.supportandresistance.com/futures-trading-classes.html | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Shooting the Breeze! | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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PS. My sincerest apologizes for the screwup
at last Wednesday's Webinar. Wednesdays are particularly bad for me
since I'm usually out of town on Wednesday and it seems that more often
than not something happens on the way home to make me too late for the
webinar. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Currencies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Australian Dollar
Mexican Peso
The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Energies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Energies Market Overview The Energy markets entered a consolidation period last week and didn't really do too much, until Friday of course. Unleaded gave us the best looking setup as the market made a channel/pennant formation for the better part of the week. I was hoping we could squeeze one more day out of the formation before the breakout; however the big move came on Friday, so now we're spectators until we see support again. And then there's heating oil.... Heating Oil What makes Heating Oil different from the other markets? Well for starters Heating Oil has run away from us yet, the market is still trading within the support/resistance zone (aka channel) established last week. Another unique thing about Heating Oil is that the market made a breakout through resistance on Thursday, only to fail and fall on Friday. Do you know what that means? I hate to waste all these great homework questions, but we've got a good opportunity brewing here. Once a market breaks a significant support/resistance area, it should continue in the direction of the breakout, right? But heating oil didn't do that. Heating oil broke the resistance at the top end of the channel but then fell off to support. This failed attempt (and loss) might actually show us which side of the trade we "should" be on! It is not all perfect however. Heating Oil has plenty of support just below the market at 199.00. If this market weren't so darn expensive to trade, I'd reserve my entry until the other side of the 199.00, but I won't be able to do that. Instead I'll have to sell if below the bottom of the channel and hope that if it breaks lower, that this time the breakout will be sustained. We should be able to squeak out an entry below the 199.50 line, so at least we can make the market move a little ways before finding our entry. The exit stops will go above the 200 resistance, which is ridiculously tight for an energy market, but if we get a move (or a continued move), then prices shouldn't look too far back – I hope. DMI is non-existent, so this trade is about as big of a crapshoot as you can get. The false breakout has a tendency to be fairly reliable however, so if it works out we'll be looking pretty smart with $3700 in potential profit if prices trade to support at 190.50. I won't be greedy however, and will begin severely tightening stops as soon as we're past breakeven. SELL September Heating Oil at 199.45 Exit Order: 201.10 Approximate Risk Exposure: $693 per contract Profit Target: 190.55 Approximate Potential Profit: $3738 per contract RRR: 5:1 Degree of Risk: HIGH
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Financials / Indices | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financials/Indices Market Overview The Eurodollar and Index markets continued to rally last week. I didn't think the ED had this much upward momentum to it; however rates continue to climb and DMI is rising, so I guess it does have that kind of strength after all! In spite of the rallies I'm still reluctant to buy however. The long term out look for the ED is still fundamentally and technically bearish. I am still of the opinion that any short term rallies are just that – short term. The index markets also caught me by surprise when they continued to rally into the weekend. After several weeks of decline and in spite of trading off strong resistance (especially the Dow), all three markets managed to post rallies going into the weekend. We might see a reaction to those rallies early next week; however I might be a cautious buyer. These fickle markets have a tendency to turn on a dime and until we see a stronger trend develop I'm going to be a bit suspicious. FLAT Financials and Indices The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Grains | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Grains Market Overview An "off" week for the grain complex last week as many of the markets didn't do too much. We ended up selling corn on a breakout through support, but the market promptly stalled and is continuing to hover near our entry. Soy Meal was a little more cooperative as the market fell off again, filling our short order. By the weekend we saw a nice move to the downside giving us some nice profits. It's too bad that the rest of the bean complex wasn't as cooperative as Bean Oil and the big Bean market are still looking choppy. Rice was the other big mover last week; however we were looking to buy the market long and prices quickly fell to support instead. From here we saw the market continue to hold trendline support, so I'm not sure if we saw a reversal in trend or just a market bouncing around. Corn Part of the problem of trading a chart with so many obvious support and resistance levels is deciding where to get into a trade. In a case like this you often just have to bite the bullet and "pays your nickels and takes your chances". This is what we had to do with our corn trade last week. There is obvious support at the 237 area in corn. The problem is that there is obvious support all the way from 230 right to 237, which makes choosing the right entry very difficult. Our corn trade began well enough with a rather strong move lower on Wednesday, but after we got filled we saw the market begin to flounder on Thursday and Friday. We've got exit stops in above the 240 resistance, although for a couple of extra dollars you could have left them above 242, which is arguably still the better placement. Even so, stops above 240 helps us keep our risk to a minimal level should prices continue higher. Profit target continues to be support at 220 – 221; however we will likely encounter support at the contract lows at 226 when/if prices continue lower. CONTINUATION of Short September Corn from 237 1/4 Exit Order: 240 1/4 Approximate Risk Exposure: $150 per contract Profit Target: 221 3/4 Approximate Potential Profit: $775 per contract RRR: 5:1 Degree of Risk: Moderate to HIGH
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Meats | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The Meat complex struggled
for direction last week. Feeder and Live Cattle both declined to support
levels before bouncing slightly by the weekend. These markets have put in
topping formations and are technically in downtrends; however the bounces
have cast a shadow of doubt as to the true direction prices want to take.
Live Cattle is also trading off strong weekly support, which is making it
difficult to short the market at these prices. DMI is weak in both markets,
which doesn't help matters either. FLAT Meat Complex The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Metals | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Metals Market Overview The crazy ranges continue to highlight the metal markets. We definitely had the right idea with the copper market last week as prices bounced off the 325 line, just as we anticipated; however we didn't have enough elbow room in our limit order, so we were unable to ride out the range and take advantage of the rally. This is a distinct problem with limit orders, especially in big ranging markets like copper. You never really know how low the market will be able to reach. Gold and silver continue to look aggressive, bolstered higher by the weak USD. Both markets had relatively small ranges in spite of a big dip in the USD. Both gold and silver are bouncing off of RSI tests, so that may offer us a good buying opportunity for this week. Silver I must have rocks in my head for even considering trading a market like silver with such a weak trend! Normally wouldn't touch this market without a strong trend, or strong resistance to enter above, but at this point in time we have neither. Not only do we not have a strong trend, but we also have two substantial resistance levels just above the market, one at 1180 and the other at 1200, both of which are more than strong enough to turn the market around. So why am I considering trading silver? Because of the RSI bounce and because of Friday's small range. RSI gave us a textbook bounce off the trendline on Friday, which is often a foreshadowing of what prices will do next. Combine this with the small range from Friday's session and we can actually put a trade one without too much risk. In silver I'm always on the lookout for a small range because we don't get that many. A small range means the market is "thinking" and that gives us a chance to get in the way of a move when it happens. We have the added advantage of taking the trade Monday morning, so there won't be anything happening during the overnight session to mess up the trade. I struggled with entries in an attempt to keep the risk as small as possible. Ideally we would want to enter either above the aforementioned 1180 or 1200 ranges; however as small spec traders this would be impossible to do with futures (NOTE: you might consider buying call options and using 1180 – 1200 as a trigger to buy the option), so I settled on buying a breakout above last week's high at 1152. There was some mediocre resistance in the 1150 – 1160 range so I decided to wait until a break of 1160 to buy. Exit stops will go below the 1150 support for $800 risk. The profit target is the 50% retracement level at 1240, but I'll be looking for profit anywhere around 1230. BUY September Silver at 1165.5 Exit Order: 1149.0 Approximate Risk Exposure: $825 per contract Profit Target: 1234.0 Approximate Potential Profit: $3425 per contract RRR: 4:1 Degree of Risk: HIGH
The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Softs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Softs Market Overview The Soft complex also held some surprises for us last week. I can't believe that cocoa continued to channel between support and resistance for the whole week! The monster decline of the week before should have been followed by a "normalizing" bounce of sorts, but it never came. A channel can be almost as good as a bounce; however as oversold as RSI is at the moment I'm having a very difficult time bringing myself to sell. Coffee prices rallied into bull country; however the market is nearing another RSI test as well as the price trendline, both of which are likely to bounce, or at least stall, the market. In spite of this, I'm still cautious about trading coffee as I think the upside will hold the greater potential, so maybe we'll hold off a bit longer. Cotton is still a mystery to me as the market isn't paying much attention to support and resistance at the moment. Cotton will do that from time to time. Sometimes it's dead on the numbers and then other times it's all over the board; this is one of those latter times. When it's behaving this way it's usually best just to leave it alone for a bit... but we'll keep watching. OJ rallied higher last week, which was a bit of a surprise. I didn't think the market had that much left in it, and truth be told I'm still a little suspicious. The last time OJ made a run higher like this it was followed by a big move lower. There are bullish and bearish factors at work here; the big question is how to take advantage of them without getting hurt. And then there's sugar. We called this move in advance; however the market decided to do a little hiccup on the way down and took us out of the short position before moving further. We missed the first leg of the move as a result, but we might have another chance at the next run. Orange Juice OJ is a paradox. We have the market in an obvious uptrend. DMI is reasonably strong, but RSI is nearing a testpoint which could bounce the market lower. Prices have formed resistance at 170.50 toward the end of last week and we're trading just under the contract highs, which also happens to be strong long term resistance. So what do we do? All these conflicting signs would normally be a good reason for avoiding the market altogether; however the 170.50 resistance and strong uptrend is almost too much for me to pass up. The pending RSI bounce is making this a very risky trade; however in the case of OJ, if you don't catch the market early then you might not get in at all. This was certainly the case with the last rally the market made. I'll try to avoid a whipsaw trade and will look to buy the market above 171.00. I wanted to put exit stops below the support at 168.00, but that was going to be too expensive. Alternatively I chose the intermediate support at 169.00 to cover the trade. Profit target comes from the long term charts at 187.00, but I'll get looking to cover anywhere around 186.00, just to be safe. BUY September OJ at 171.25 Exit Order: 168.95 Approximate Risk Exposure: $345 per contract Profit Target: 185.95 Approximate Potential Profit: $2205 per contract RRR: 6:1 Degree of Risk: HIGH
The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The Score Card | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The purpose of this section is to give you a feel for which markets might be worth trading and which you might pass on given your own set of circumstances. The figures quoted are based on the price levels outlined in the ezine, trading single contracts and do not accurately account for slippage, commissions or other trading related fees. The Score Card is updated monthly. Summary for the Month of May 2006
* NOTE!!! Trading commodities is RISKY!!!!
These figures are estimates in the interests of tracking the trades. Erich
may or may not have a real money position in any market covered at any
given time. This Score Card does NOT apply to Tom's Trades. This is
neither a solicitation to trade nor a recommendation of any strategy.
Always consult your broker or advisor before attempting any trade.
Commodity trading involves substantial risk of loss. See full disclaimers
at the bottom of this email. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Lesson du jour | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Question: How does one avoid triggering trades that you later say "gapped beyond our entry"? As someone who works during trading hours and cannot use trading software at work, I cannot do much more than enter the entry stop price. But many of these trades trigger for me, and you later say "gapped, so we didn't enter..." Any ideas or help here? Answer: The reason we watch the market open is because this is generally the most unpredictable time of the day for the market. If a market opens too far beyond where it left off it can be an indication of trouble and therefore we will avoid trading gapping markets. The open is when all the new/overnight news hits the markets and the daily tug-o-war begins. Once the market sorts itself out it usually picks a direction and sticks to it for the remainder of the day. Our goal therefore, is to enter the trade after it has settled on a direction and to avoid the unsettled period that accompanies the early minutes of opening range. There are a couple of ways you can do this, and I'm not certain which will work the best for you, so I'll let you decide. If it is at all possible, you would like to monitor the market opening for yourself, if you can not do this (even for a few minutes) then you're next best option is to delegate that job to a broker. I understand that a broker will charge more in commissions than electronic platforms do, but it might be a cost of doing business if you're going to trade this way. Most commissions run about $35/round turn and even the most expensive broker's commission will be less than the cost of a losing trade. (Reasonable commission rates vary between $25 – $45/round turn). Of course you could also delegate the responsibility to someone you trust (ie. spouse) who could watch the open for you and implement the trade according to your directions, in much the same way a broker would; however in this instance it wouldn't cost you anything at all, providing they know how to enter your order correctly. Another option is to check with your trading platform provider to see if there is a way to delay your entry order. If you are able to delay your entry until after the first 30 minutes of trading, most of the dust from the morning frenzy will have settled and it will be safer to enter your order then. Many people do exactly this, and avoid the opening session altogether, opting instead to place their orders 30 minutes after the open, whether they're trading electronically or not. If you choose to go the broker route, you can also give your broker instructions to avoid the opening range, as opposed to monitoring the open. The only problem with this scenario is when the market is already trading beyond your intended entry. This leaves you with either placing your trade as a limit order and hoping you get filled, or missing the move entirely because the risk/reward ratio of the trade has become too skewed on the risk side. The last thing you can do is to concentrate your efforts on only the best looking trades. This will require you to be very selective in your picks, choosing only those trades that look like sure things – or pretty darn close. If you pick only those markets with the most things going for them, then the market open is irrelevant and you can place your order "as is". This will require a great deal of patience on your part, but remember that successful trading does not come from trading a lot; rather it comes from trading multiple contracts on strong setups. As an aside, I know of a successful trader who only trades about 10 – 12 times a year (approximately once a month) – and he trades for a living! Needless to say he is extremely patient and spends a lot of time looking for the ideal trade. Once he finds a trade he likes, he will take multiple contracts to make it worth his while. I know that on one occasion he only did one trade for the year, and netted $150K in the process! Don't get me wrong. There are a lot of ways to make money in trading, and you have to find the one that is right for you. My trading friend is prepared to accept a lot of risk at the beginning of the trade, and this might not be right for you, but the point of sharing the story with you was to show that there is a lot to be gained by waiting for the best trades to come along and being prepared to take advantage of them. Got a question that needs answering like an itch you can't scratch? Send it along to me at Erich@tradershelpingtraders.net and I'll be happy to try and clear things up for you. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Homework |
Last Week's Question: September Rice has been struggling for a few weeks now and the end result is a sideways channel formation. RSI broke the trendline on Friday, but does this mean we should look to sell? Why, or why not?
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Futures Trading is Risky! Never trade with money you cannot afford to lose! |
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Nothing in this publication is either a solicitation to trade or a recommendation of any strategy. Always consult your broker or advisor before attempting any trade. Commodity trading involves substantial risk of loss. THE DATA CONTAINED HERE IN ARE BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABILITY, ACCURACY OR COMPLETENESS; AND AS SUCH ARE SUBJECT TO CHANGE WITHOUT NOTICE. TRADERS HELPING TRADERS AND IT'S ASSOCIATES WILL NOT BE RESPONSIBLE FOR ANYTHING WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HEREIN. DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING FUTURES AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. FUTURES AND OPTIONS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES POSITION. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. ONE OF THE LIMITATIONS OF HYPOTHETICAL
PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT
OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL
RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE
IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO
WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF
TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL
TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS,
IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH
CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING
RESULTS. Traders Helping Traders
Publications, including this one, are all copyright Traders Helping
Traders, all rights reserved. You may not re-distribute this publication
without the permission of the owners. - http://www.supportandresistance.com/
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