Support and Resistance Trading
Simple Strategies for Short Funded Traders

Traders Helping Traders E-zine for the week 1-28-2007 - Test Drive Edition


Question: Do you ONLY cover one or two markets??

Answer: NO!! We cover all markets in all sectors - wherever there's a good trade, we'll cover it!

This is only the TEST DRIVE Edition. Our Subscribers get the whole thing, the evening BEFORE the markets open.

For a detailed analysis of ALL the markets Erich and Tom cover along with explicit charts, entries, exits, stops, risk/reward ratio, potential profit, (and much more) please join us at http://www.supportandresistance.com/subscribe.html

 

Part One - Erich's Trades

My tan is really starting to fade. I've been home a little over a month now, and you almost couldn't tell I've been away. Isn't that annoying? I might have to do something about that. No, a tanning bed won't cut it and a "spray" tan only lasts for a week, so I think I'll just have to go back to Mexico, that's all.

I'm not going to make you guess where I'm going this time, because you've likely never heard of the place and there were no movies filmed here, so I can't use that angle again. At the end of the week we're going to be flying off to Huatulco (pronounced wha-TOOL-koh), a little fishing village a few hours south of Acapulco and not too far from the Guatemala border. Like Ixtapa it's also on the Pacific side, and supposed to be very quiet and secluded. I've never been here before and am really looking forward to it.

We're flying down with friends of ours, fellow golf nuts, who have been here several times and just love it. Apparently there's a golf course near by, so you'll know where I'm going to be – golf, beach, and buffet will probably sum up the details of most of my days.

Since I'm going to be travelling toward the end of the week I might not be able to get an update to you for Friday's trades. I hope everything will be online for the weekend ezine and the nightly updates to follow. I'm going to find out the internet details tonight, and hopefully there won't be any snags. By the end of this trip I should be a regular George Hamilton!

Erich
erich@tradershelpingtraders.net

Lesson du Jour

Question:

Can you exercise an option at any time or do you have to wait until the day the option expires? Also, if you do exercise the option, do you have to put up margin at that time?

Answer:

While there are a few exceptions, you can usually exercise your option into a futures contract anytime during the life of the option, or on expiration. You would normally only exercise the option if it is trading in-the-money, otherwise it will cost you money to exercise it, which kind of defeats the purpose of exercising the option in the first place.

If you are holding an in-the-money option on expiration, it is normally filled into a futures contract for you. If you do exercise the option you will be required to pay margin, just like for a regular contract; however, it is very unlikely that you will ever want to exercise an option.

There is no real advantage to be had by exercising an option. Rather, in most cases you would most likely bank profits (or cut your losses as the case may be) just as though you were trading a regular futures contract. Unless you are planning very long term trades, or are a commercial buyer, it is unlikely that you will want to hold onto any trade (option or contract) for more than a few weeks, unless of course the market is really exploding.

Erich

For the archive of hundreds of priceless homework articles and Lessons du Jour, please join us at http://www.supportandresistance.com/subscribe.html

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.
 

A Sampling of the Markets we're covering this week...


Currencies Overview

We caught a couple really nice moves in the currencies last week. The EuroFX and Mexican Peso both responded perfectly by holding the trend and breaking support. Now that we have a trend in motion our challenge is to manage the trades effectively, which is easier said than done. We've got a lot of risk in the EC trade whereas the Peso trade has lower risk but larger ranges.

There are a couple new opportunities as well for this week. The Canadian Dollar and Japanese Yen continue to flirt with recent and long term support. This might give us an opportunity to sell these markets on a continuation lower.

Canadian Dollar

The Canadian Dollar has been in a tailspin since last September, and while the market is due for a retracement I have to stay with the trend side of the trade. Last week saw the CD break significant long term support, and while we are still within the support's influence I wouldn't rule out a move lower.

The plan for this week is a simple sell on the breakout through support, but since we're so close to the xx50 line already, I'll make plans to sell a break through here instead of through the recent support at 8460. This will give us a couple more ticks to help keep us on the right side of the trade and will hopefully avoid a whipsaw.

Exit stops will go above the 8490 intermediate resistance, but I would have preferred to use 8500 as it is a stronger line both on the chart and psychologically. I could have pressed the profit target to 8250, which is the longer term target, but thought it prudent to factor in possible support at 8300. Using 8300's support necessitated having to use a slightly tighter stop, but we've also got an RSI hook, so I'm confident that if we get a continuation lower our initial stop placement is not going to be an issue.

SELL March Canadian Dollar at 8449
Exit Order: 8491
Approximate Risk Exposure: $420 per contract
Profit Target: 8303
Approximate Potential Profit: $1460 per contract
RRR: 3:1
Degree of Risk: Moderate

canadian dollar chart

Euro FX

Do you want the good news, or the bad news? The good news is that the EuroFX gave us a very clean breakout lower last week. The bad news is that the move wasn't big enough to allow us to do enough to get our trade to breakeven. Well, that's not entirely true. There is enough room in the trade to get to breakeven; however that will almost guarantee getting stopped out on Monday. Of course that would only be bad if the market was not reversing, in which case you got stopped out of a perfectly good trade; otherwise the early exit would be the "smart" thing to do.

If you can afford the risk, I would attempt to ride the market lower. We had a good breakout lower, and DMI seems to be building, all good signs for rates to continue to fall this week. This plan still requires you to leave $700 at risk, which isn't chump change by any stretch. So what's the right choice? There isn't a "right" one. Only what's right for you.

Isn't trading fun?

CONTINUATION of Short March EuroFX from 129.67
Exit Order: 130.23
Approximate Risk Exposure: $700 per contract
Profit Target: 126.71
Approximate Potential Profit: $3700 per contract
RRR: 5:1
Degree of Risk: Moderate

euro fx chart

Japanese Yen

The Yen trade is very similar to our Canadian Dollar trade, where it is a simple sell on a breakout through support. The market's reduced ranges last week served to tighten up support and resistance to a point where we have a pretty reasonable risk trade. The Yen is also showing good downside momentum even though we are toying with important long term support. This could cause us problems this week, but hopefully if we violate support we will take the momentum with us. Conversely if support should hold, I hope that the Yen won't have the ability to "fudge" the numbers too much and catch us in a whipsaw.

Like the Canadian Dollar trade, the Yen is also giving us an RSI hook. If the market follows through on the RSI lead we should see rates decline to the next long term support at 7975-ish

SELL March Japanese Yen at 8267
Exit Order: 8321
Approximate Risk Exposure: $675 per contract
Profit Target: 7987
Approximate Potential Profit: $3500 per contract
RRR: 5:1
Degree of Risk: Moderate to HIGH

japanese Yen chart

Mexican Peso

The RSI hook came through in a big way last week as the Peso fell off sharply. We're not quite in a breakeven situation just yet, and Friday's range didn't help matter much. When trailing a stop I usually like to leave it two days back for each day the market heads lower (in the case of a downtrend). The Peso fell off slightly on Friday, but this means that the "best" stop placement is still above Thursday's high.

This is normally not a bad thing, but Thursday was our big breakout day. This means that our stops would still be in a loss position should the Peso make a big move higher. I do expect the Peso to react to last week's dip, and we're likely to see a move at/near trendline resistance. The trade off is that we get the trade to breakeven so we don't have any risk position, and if we get stopped out we try to re-enter later – which is sometimes easier said than done.

I'm going to take a chance a leave the stop above Thursday's high, but there are no guarantees. Do what your wallet tells you.

CONTINUATION of Short March Mexican Peso from 90.975
Exit Order: 91.325
Approximate Risk Exposure: $175 per contract
Profit Target: 88.625
Approximate Potential Profit: $1175 per contract
RRR: 6 1/2:1
Degree of Risk: Low to Moderate

mexican peso chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free here. The rest of the Markets in all sectors are covered in the Subscriber Edition.

This is only a small sample of the markets we cover!

For a detailed analysis of ALL the market sectors, with explicit charts, entries, exits, stops, risk/reward ratio, potential profit, (and much more) please join us at http://www.supportandresistance.com/subscribe.html

If you have any questions at all about any of these chart lessons, please feel free to ask at the futures trading forum or click here to email us. You can also chat with Erich and Tom live every Wednesday evening at 9:30pm eastern in the HotComm webinar room. Click the link for details about the Support and Resistance Trading Webinars.

Erich's Updates for rest of the week - watch the blog.

Take care, and good trades to you for the coming week!
 

Homework

Question:
I've long been a fan of long term charts. Once you learn how to read them, the long term charts can give you a ton of information about what to expect on the daily chart (if your day trading, then you're consulting the daily chart to give you an idea of what to expect in the intraday).

Below is a picture of the March Lumber weekly chart. What does this chart tell you about the directional bias off the current Lumber market? Which way would you trade it? From where?

The rest of this Homework assignment is in the Member's section.

For the archive of hundreds of priceless homework articles and Lessons du Jour, please join us at http://www.supportandresistance.com/subscribe.html
 
 

 
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Pick of the Letter


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Futures Trading is Risky! Never trade with money you cannot afford to lose!


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.
 

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