Traders Helping Traders Ezine and Paper trades

Simple Strategies for Short Funded Traders

Traders Helping Traders E-zine for the week 8-21-2006 - Test Drive Edition

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Lesson du Jour

A Broker Story – Or How Brokers Can Make You Broker

I received an interesting email from a trader this week. Apparently this fellow is considering moving to an electronic trading platform because his broker is too tardy getting him into, and out of trades. This gentleman assumed that I use an electronic platform for my trading (I do not), since I always seem to get filled on my orders whereas he occasionally misses out on winning trades.

First off, many of you know that I have always been a little leery of electronic trading. I've just heard too many horror stories about Do-It-Yourselfer traders forgetting about open orders, forgetting to place stop losses or simply placing the wrong order, and the devastating effects this has on their accounts, to convince me to trade electronically. I've always been of the opinion that it's worth the cost of the commission to make sure my order is placed correctly, but that's me.

I will be the first to admit that commissions add up, and the much cheaper electronic fees are enough to entice even the most seasoned commodities trader into abandoning their broker assisted trades in exchange for the electronic version. But for most people, this is not where the real problem with their trading lies.

For most traders the problem with broker assisted trading two fold: first you need to be able to reach your broker in a timely manner to execute your order...after all, in trading time can literally be money; and second you need to be able to discern between the good and bad advice your broker might offer you.

The first problem has never really been much of a problem for me, probably because I quickly learned to deal only with brokers who have time for me, and partly because I give my broker an outline of my trades BEFORE the markets open.

I've dealt with brokers in the past that were too busy to speak to me and would shuffle me off to one of their assistants. I understand perfectly how annoying this is, and I never ended up staying very long with a broker like that. Besides, there are too many good brokers out there to waste your time and money on bad ones.

A foolproof method to get better entry on your orders is to give your broker an outline of your trade before the market opens. My broker knows exactly where I want to enter the trade, how many contracts I want traded, where the exit order is to go and where I intend to take profits. Exactly.

He also knows how high or low I will allow the market to open before pulling the trade for the day. This way, when the market opens, he knows what I want done and will execute my orders as per my directions.

The second part of the broker problem, the one having to do with listening to a broker's advice, can be a little more difficult to deal with. After all, brokers have access to information that we do not. They are professionals in the trading industry and as such we assume that they know better than we do. Let me be clear about one thing: they do not know better.

Always keep in mind that your broker still works for a living. If they were as good at trading as some of them like to think they are, then they would be the one on the phone placing the order instead of the one answering the phone. That is not to say that you can not listen to what your broker has to say, brokers can be an excellent resource, but simply that you should make up your own mind about your trades.

This is exactly what Tom and I preach to you week after week.

Never lose sight of the fact that the broker is your employee. They work for you. You are the boss and they are paid to carry out your instructions, not to talk you out of a trade. There is a fine line between advice and information. Good brokers should provide information with a minimal amount of advice. For instance, if there was a market report due out the morning of your trade, your broker should alert you to this, but not necessarily talk you out of taking your trade if that is what you want to do.

The poor fellow who wrote me bemoaned all the money he could have made if his broker hadn't talked him out of various trades he was considering. This is a problem. I hear from brokers all the time telling me that my stops are too tight and that my trades will never work out. Most of them quickly stop criticizing however, when they see that my stops are not too tight and that my trades do work out.

The problem is that most brokers do not understand how we trade. Most brokers are used to the "traditional" trading methods, usually employed by traders boasting accounts in the hundreds of thousands of dollars, using wide stops and trying to capture big market moves. This may be fine for the big trader, but advice like this can kill the small trader. As a result, your trading career might depend on dealing with a broker who understands the subtleties of trading support and resistance.

So how do you find a good broker? Fortunately we've already done the homework for you and have found some brokers whom we consider to be the cream of the crop. If you're not happy with your current broker, and are considering a change, drop me an email at erich@tradershelpingtraders.net and I'll be happy to share our list with you.

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.

Markets for this week...

Currencies Market Overview for The Coming Week

It was a pretty choppy week in the Currency markets last week, and just when I was beginning to think that these markets had settled on a trend! The best thing about trading the currencies is that they tend to trend very well, but after last week I might have to reassess that assertion.

The Aussie and Canadian Dollars both seemed to stall out at recent resistance causing the markets to trend mostly sideways making it difficult to take a trade in either market. The Pound, Swiss Franc and EuroFX all fell off sharply due to a stronger US Dollar Index. I'm not convinced that this is a full reversal in trend however, not yet anyway, but it is getting close. I'll be watching the trendline in all four markets for a support/resistance reaction this week.

The Mexican Peso trade yielded a few dollars last week before reversing sharply to end the week. The market seems to have the strongest trend of all the currencies right now, and since a strong trend is important to us position traders we might give this one another look this week.

Mexican Peso

The Mexican Peso continues to impress me with how well this market can trend. DMI is still showing a strong trend and seems to show signs of increasing in strength. Last week we saw the market fall off slightly after breaking out through the resistance at 92000, entering a bit of a pullback phase for the short term. What's especially interesting about the Peso however is that RSI has hooked higher off the trendline before rates did! This might be an early indication of what to expect this week.

The plan is to trail a buy stop to pick up the Peso on the next move higher. The market is currently trading off strong support at 92000 which should hold it up this week; therefore I'll place a buy order just above the resistance at the 92500 high.

Entering above 92500 I'll run my exit stop below the 92000 support zone. After all, a break through the resistance followed by a reversal through a line as strong as 92000 means we're on the wrong side of the trade.

We need to go to the long term charts for a profit target however. The first target is the contract highs, but after that we can look to weekly resistance at 95625. I won't wait that long to exit however, and will get very serious with my stops as we get closer to 95500.

BUY September Mexican Peso at 92625
Exit Order: 91950
Approximate Risk Exposure: $337 per contract
Profit Target: 95475
Approximate Potential Profit: $1425
RRR: 4:1
Degree of Risk: Low to Moderate

September 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.

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

For a detailed analysis of ALL of 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 Tuesday - watch the blog:
To Follow

Tom's Updates for Tuesday - watch the blog:
To Follow

Erich's Updates for Wednesday - watch the blog:
To Follow

Tom's Updates for Wednesday - watch the blog:
To Follow

Erich's Updates for Thursday - watch the blog:
To Follow

Tom's Update for Thursday - watch the blog:
To Follow

Erich's Update for Friday - watch the blog:
To Follow.

Tom's Update for Friday - watch the blog:
To Follow.

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

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 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 June 2006

Date	Pos.	Market	In	Out	Profit/Loss
June 2 – 6	Buy	July Rice	913.0	903.0	200 loss
June 2 – 6	Buy	July Wheat	401 ¼	395	312 loss
June 2 – 6	Buy	June Live Cattle	8027	7952	300 loss
June 5 – 9	Sell	July Coffee	9970	9720	937 profit
June 6 – 9	Sell	July Sugar	1497	1523	291 loss
June 9 – 12	Sell	July Corn	243 ¼	248	237 loss
June 9 – 15	Sell	July Wheat	370 ¼	365 ¼	650 profit
Jun 13 – 14	Sell	June Swiss Franc	8087	8123	450 loss
June 13 – 16	Sell	July Rice	892.5	875.5	340 profit
June 13 – 20	Buy	August Feeder Cattle	108.62	112.85	2112 profit
June 13 – 20	Buy	August Live Cattle	7905	8370	1860 profit
June 13 – 20	Buy	June Lean Hogs	7202	7680	1910 profit
June 14 – 19	Sell	September Canadian $	9001	8943	580 profit
June 14 – 27	Sell	March Eurodollar	94.575	94.365	525 profit
June 15 – 16	Buy	July Bean Oil	2507	2477	180 loss
June 16 – 20	Sell	July Coffee	9490	9590	375 loss
June 19 – 20	Sell	June Australian Dollar	7357	7373	160 loss
June 19 – 26	Sell	July Cotton	5135	4850	1425 profit
June 27 – 29	Sell	September mini-Dow	11037	11073	180 loss
June 27 – 29	Sell	September mini-S&P	1249.50	1258.50	450 loss
June 29 – July 5	Buy	September EuroFX	126.53	128.34	2262 profit
June 29 – July 5	Buy	September Swiss Franc	8133	8215	1025 profit
			Gross Profit: $13,626 per contract	Gross Loss: $3135 per contract	Net Profit: $10,491 per contract 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.

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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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