Support and Resistance Trading
Simple Strategies for Short Funded Traders

Traders Helping Traders E-zine for the week 11-12-2006 - 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.

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

This weekend is Remembrance Day in Canada, Veterans Day in the US, when we pay tribute to the men and women who serve in our armed forces. Remembrance Day didn't mean much to me when I was a child, it was just another opportunity to see a parade but that's about all I understood. As I got older however, I came to realize what a sacrifice soldiers had to, and still have to, make in the name of freedom and how precious a gift freedom really is. We are unbelievably fortunate to live where we do. It's easy to lose sight of that fact and Remembrance/Veterans Day is a great opportunity to bring that back into focus.

There is a poem called "In Flander's Fields", written in WWI by Lieutenant Colonel John McCrae and doctor and soldier with the Canadian Army, which has long been the 'official' poem of Remembrance Day in Canada.

In Flanders Fields

In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead.
Short days ago
We lived, felt dawn, saw sunset glow,
Loved, and were loved, and now we lie
In Flanders Fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders Fields.

- John McCrae
 

Lesson du Jour

As you know I've recently begun playing with DMI in place of Volume/Open Interest as a tool to help me gauge the strength of a trend and to help confirm directionality in my trades. Overall I find the indicator useful as a filter to help me stick to the strongest trending markets: something that is vitally important for a position trader. DMI also can give buy/sell signals, and while I don't use the indicator so much in that respect, it is nevertheless another tool in our trading arsenal.

Below is a brief DMI primer, which I've taken from Gecko's Track 'n Trade manual about the indicator. It will help give you an idea of what to look for in the indicator. The article turns slightly technical and I've taken the liberty of editing out some of the calculations, but don't worry if you don't understand the math. All you need to use the indicator effectively is a general understanding of how to interpret it.

DMI Primer

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 Market Overview

It seems like most of the currency markets entered a bit of a pullback phase this last week. The Aussie Dollar especially made a big rebound after finding resistance. The Canadian Dollar continues to struggle with direction and we're on hold until we something near the strong support at 8800. Speaking of trading ranges, the Yen is also stuck in a range but here we have an upside as well as downside targets: 8630 and 8500. We'll be on hold until we see the market trade beyond here.

The US related markets seem ready to move. The Pound is trading near the contract high which could give us a good entry point. Similarly the EuroFX is trading off reasonably strong resistance at 129 and you might be long the Swiss Franc already if you ignored the 3 tick opening gap. The gap in the US Dollar was too big to ignore however, so that trade got scrubbed for Friday.

British Pound

The British Pound made a nice bounce off the RSI trendline last week sending the currency higher. It was unfortunate that the rally was a gap 'n fade session, which is normally bearish; however you have to remember that the currencies trade around the clock, therefore a gap 'n fade day holds less significance than it would in a day session only market.

The trend is strong and the fact that we can incorporate the resistance on the contract highs into the trade does give us a bit of an "edge" as we try to stay on the right side of the market. The contract highs are currently at 191.90, which is essentially a run at 192's resistance; therefore we want to be sure to enter the market long on a break above 192.

With our first profit target being long term resistance at 195, it is difficult to enter the market long any later than 192.03 and still have a good risk/reward ratio. To keep the RRR favourable we also need to use the 191.10 support zone to cover the trade. There is strong support here, but I would have preferred to place the stops right under 191, but the added risk skews the trade too much, so we'll just have to take our chances. The good news is that a break through the contract highs will require a great deal of momentum, which should send the market higher still.

BUY December British Pound at 192.03
Exit Order: 191.07
Approximate Risk Exposure: $600 per contract
Profit Target: 194.99
Approximate Potential Profit: $1850 per contract
RRR: 3:1
Degree of Risk: Moderate to HIGH

British Pound Chart

Energies Market Overview

I'm convinced that the Crude complex is trying to put in a bottom as Unleaded, Heating Oil and Crude all had short lived rallies last week. If this is the case we could be halfway to a bottom formation with the other half likely to complete this week on a short term move to the downside. We've got the upper barrier highlighted for us now and you cold put a buy order above here, or if you prefer to can wait for the market(s) to show you their downside potential as well.

Natural Gas was looking promising earlier in the week; however now the market is completely range bound. You might interpret the recent trading as a sideways pennant formation. If so we could see a breakout later this week or early next week.

Crude Oil

Although the trend is weak and could falter, Crude is trading at significant resistance, giving us a good opportunity to buy the market higher this week. And with all the support nearby, we are also able to keep the risk to a more reasonable level – reasonable by crude's standards anyway!

As I've already mentioned, it looks as though the energy complex might be trying to put in a bottom formation, this after a very long decline in prices which started back last summer. The choppy trading of the last few weeks makes me a little suspicious of the strength of the downtrend and DMI confirms my suspicions.

On Friday we saw prices turn from the resistance at 6350, falling off for the entire session and closing rather low. This tells us that there is a particular sensitivity to this resistance area, making it an appropriate level to buy the market above. Looking back in the history of the chart you will see that recent hits around 6350 spread as high as 6370, so we'll try to give the market a little extra room and buy a break of 6370.

Exit stops will go below the decent support at 6245. As you can see on the chart there is a fair amount of activity here, making it a suitable stop loss. The profit target is the resistance at/near 7100. Depending on how the trade progresses I might adjust the profit target a bit – either taking profit early, or opting for a trailing stop.

BUY January Crude Oil at 6375
Exit Order: 6245
Approximate Risk Exposure: $1300 per contract
Profit Target: 7100
Approximate Potential Profit: $7250 per contract
RRR: 5 1/2:1
Degree of Risk: Moderate to HIGH

light crude oil 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 markets, 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!
 

The Scorecard

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 September 2006

Date Pos. Market In Out Profit/Loss
September 5 – 15 Sell November Unleaded Gas 172.85 162.05 4236 profit
September 5 – 18 Sell November Heating Oil 199.95 179.15 8736 profit
September 5 – 18 Sell November Crude 6975 6435 5400 profit
September 5 – 7 Sell December Corn 243 ¾ 243 ¾ 0
September 6 – 8 Sell December Bean Oil 2497 2513 96 loss
September 6 Sell December Cocoa 1483 1501 180 loss
September 6 – 11 Sell December Swiss Franc 8163 8129 425 profit
September 11 – 15 Sell December Soy Meal 159.9 162.7 280 loss
September 11 Buy December mini-Dow 11507 11427 400 loss
September 11 – 18 Sell December Corn 243 ¾ 244 12 loss
September 12 – 14 Buy December mini-Dow 11507 11593 430 profit
September 12 – 13 Buy October Lean Hogs 6770 6657 450 loss
September 15 – 18 Sell December EuroFX 127.17 127.67 625 loss
September 15 – 19 Buy Dec. US Dollar Index 8571 8533 380 loss
September 15 – 20 Sell March Eurodollar 94.675 94.735 150 loss
September 18 – 19 Sell December Japanese Yen 8569 8615 575 loss
September 19 – 26 Sell December Mexican Peso 90.975 90.325 325 profit
September 19 – 22 Sell November Heating Oil 156.85 154.05 1176 profit
September 20 – 25 Sell October Live Cattle 8947 8052 420 loss
Sept. 22 – Oct. 3 Sell Dec. Australian Dollar 7493 7457 360 profit
September 25 – 28 Buy December mini-Dow 11653 11741 440 profit
Sept. 26 – Oct. 3 Sell December Japanese Yen 8647 8577 875 profit
September 26 – 27 Buy December Corn 258 ¼ 254 ¼ 200 loss
Sept. 26 – Oct. 3 Buy December Wheat 424 ¼ 456 1587 profit
Sept. 29 – Oct. 4 Sell December Live Cattle 8932 9040 430 loss
  Gross Profit: $23,990 per contract Gross Loss: $4198 per contract


Net Profit per contract: $19,792
 before commissions and fees!
 

* 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.
 

Homework

Question:

I made a basic boo-boo in my Bean Oil trade last week which resulted in a whipsaw. I should have known better but my emotions got the better of me and I did the trade anyway. Can you tell me what I did wrong?

Here was the trade:

BUY December Bean Oil at 2821
Exit Stop: 2770
Approximate Risk: $306 per contract
Profit Target: 2997
Potential Profit: $1056 per contract
RRR: 3:1
Degree of Risk: Moderate to HIGH

What could I have done better? There are at least two things I'm looking for.

Answer:

Check out the forum for the answer!

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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