Tuesday, February 01, 2005

Big Weekend Edition Part Two - Tom's Trades

This is only Part Two of a three part publication that is broadcast each Sunday.

The Subscribers receive this eZine in an html format complete with charts and audio files.
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Part Two - Tom's Trades - by Tom Loge' 1-30-05
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Notable Trading Tactics for Stocks and Commodities
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Opening Comments
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The saga of Julius the cat continues. We found his real house, across the walk street from us. Seems Julius was kinda' on a strike of sorts. The family there just had a new baby and Julius took exception to the arrival … wouldn't eat, wouldn't come in the house. The owners have a friend who lives out in the country on a ranch. Julius now has new digs.

Everyone had sort of acclimated to his presence at our house. So the lobbying has begun. I think, operative word "think", Jacki and I are on the same page … NO Julius II. The grandkids and housekeeper, of course, have a diverging strategy. This will not go away quickly, I fear.

Erich and I are working on the details for the first seminar. It is beginning to look more and more as if it will be in Vegas. I feel somewhat obligated to the Dallas crowd as their response pretty much buried everyone else … maybe first Vegas, second Dallas. A comparison of air fares is playing a significant role in the decision. More on this later.

We had a decent week of trading despite the fact our staple market, the Bonds, didn't produce very well for us. We made hay in a couple of surprises, most notably in Cotton. It points up the importance of diversity and being flexible enough to cover an array of markets. Hey, you have to be in the trade to BE in the trade.

Our short stops help us facilitate this approach as we keep the margin requirements and account balance to very modest levels. We also saw a week that illustrated a great lesson on the advantages of you all getting the two-pronged examples coming from Erich and I. The grain markets are at a place they will eat you up if you insist on buying in anticipation of the "Big Move". We ain't there yet and won't be there for some time.

Those who persist in playing them with the usual approach are in for a bitter couple of months. Even those of you for whom my tactics are a little tough to do will benefit from sliding down the scale from Erich's longer term position trades to my shorter time frame, shorter risk and approach these markets with more of a scalpers' mentality.

Let's close out last week and get after our game plan for Monday.
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Trade Review
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MARCH 30 Yr TBonds
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Friday's action was decidedly bullish with Bonds advancing on a half point pop right after the open. I was still in the "no buy" zone so I could only watch and curse softly under my breath. The buy at 114-03 would have been problematic to begin with and the quick jump was followed by some pretty wicked chop that only luck would have prevented us from some profit erosion anyway. Thus, I'm not viewing the non trading as a significant disappointment.
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MARCH Eurodollar
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We began the final day of the week short from 97.040 with a clear understanding we'd be flat by day's end. Friday was another day of mind numbing tight ranges. I jumped ship at 97.030 pocketing $25 which I used to lobby votes my way on the Julius referendum. Wasted effort I do believe.
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MARCH Canadian Dollar
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We opened with small gap down and then a climb to 8078. I judged this to be a failure of the 8080-90 focus area and sold 1 at 8075. We made our way to 8018, which turned out to be the low of the day, and then snapped back. I rolled the stop to 8031 and got stopped out at 32 for $430. There was enough support in the 8015-22 range to have gotten a clue. Wished I had seen it before instead of after the fact … I should have made a bit more. Don't get me wrong; I'm not at all unhappy with this outcome all things considered.
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FEBRUARY Gold
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Friday's open picked right up where we left off on Thursday. If they would have just pushed it up a tad more … and if pigs could fly, right. Sat and watched as Gold tanked $300 worth. Yes, indeed, where did the dive pull up and reverse? Why, right at 424.00, of course. I bought 1 at 424.50 looking for it to go back to at least near the opening range. It didn't get there. I found the exit at 425.40 for $90.
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New Trades
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MARCH 30 Yr TBonds
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Friday's high at 114-27 takes us right back to the recent highs. A bit of a failure occurred right at the end of day as we backed off the high to settle at 114-21. Not to hard to figure that one out … ¾ of a point run up on a Friday … think there was some profit taking going on? I'll bet. 114-21 leaves us eyeing 115-00 and 114-16 for sells.

I won't do any buying until we see a bounce off of 113-16. I'm going to be extra cautious of entries on Monday morning. Expect one heck of a struggle from 114-24 up to 115-00. There is a good chance we'll see it fail just as it did last time we visited this lofty territory. I think there might well have been some significant money parking going on ahead of the Iraqi elections … so much dire reporting about threats against voters, etc. In any event I'm about half decided not to do anything during the first hour.

I'd hate to miss another day like we had on Tuesday but I would dislike even more to get caught in something the brainiacs on the street are setting up. You pay the bucks for a call, so here it is … NO TRADES IN THE FIRST HOUR … unless they give us a clear failure and THEN a clear shot at selling the break of 114-16.
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MARCH Eurodollar
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With strength in the Bonds and a solid, with a capital "S", support line at 97.025-.020, it becomes hard to make a case for selling the ED. I'm going to relax a little on the press to sell this market and watch for some resolution. I will hang on to my play from 2 weeks ago, buying on a break above 97.055. The following was written in the 1/16 edition … it's been a long time since we've done any buying here … for very obvious reasons.

I'm going to break that pattern. I will buy a break above 97.055 with a stop at 97.040. The target is 97.095. I'll start squeezing pretty hard on ticks above 97.080. Keep an eye on appropriate RRR management along the way.
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MARCH Canadian Dollar
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The CD market continues to look for resolution at the significant support at 8060 and 8080. Friday's close at 8061 leaves us right on it. My comments from Tuesday's Daily update are just as appropriate now as they were Tuesday. We're back testing the bottom edge support of the recent trading range at 8090-80. The U.S Dollar is banging it's head on some significant recent resistance. I'd judge this a very important point for the CD.

Tomorrow I will buy a break above 8100 with an 8193 stop. Roll to B/E at 8109 and use the numbers above there from TT of 1/23 for management guidance. I will also sell a break below 8979 with a stop at 8087 and a B/E roll at 8069. 7970 is the first logical target. Trail a stop back $125-150 until we break 8000. From there down, no more than $100 at risk.
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FEBRUARY Gold
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We've been mired within the 430-420 channel for almost 4 weeks in and of itself that's pretty amazing. I will certainly continue to monitor the $10 CHANNEL. I will also continue to trade the 424 line as I've done with some success this past week. I'm adding sells off of 428 that fail there. This in essence a little compression tool applied to Gold and the $10 channel's.

Treat and play it much as you would the full on channel. Just pretend 428 is 430 and 424 is 420 and use 1 dollar ranges within which to find the confirmations.
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MARCH Cotton
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The downdraft continued on Friday, not as dramatic as Thursday's but a 185 point move still is enough to raise the heart rate of even the most jaded Cotton trader. Unfortunately it has moved us into an area of an RRR conundrum. While I think 43.50 is a tradable level of S&R, the next super area is 43.00 and 42.50.

Given the most likely result of trades against 43.00 playing it to win most likely only 50 points makes no sense when applying the RRR criteria to the trade. Hands are tied until we challenge 43.00. I will buy on a failed attempt to break 43.00 with a stop just below … 42.91 or 87 at most for risk of just $75 or $80. 44.00, 44.50 and 45.50 become tight roll triggers with 45.50 being the target. Roll it to B/E at about 43.15.
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MARCH Cocoa
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The Friday close at 1562 leaves us sitting on one of the important lines. The Cocoa has been quite choppy the last few sessions. For Monday, I will sell a break below 1560 with a stop at 1567 for risk of $70 and a roll to B/E at 1557. If we start Monday on a positive note I'll wait until 1580 and sell there if we fail. Stops and rolls … add 20 to all the numbers above. We'll have to deal with 1560 on the way back down.

Don't hesitate to play it very tight as we approach 1560. We can always get back in as it breaks 1560. I'll buy only a break above 1600 with a stop at 1593 and a B/E roll at 1607 or 09. The target here is 1680. Be tight with the rolls at 1620, 40 and 60. With the chop of late and the power of 1560, 80 and 1600 being so close together, DO NOT let Cocoa into a position where it can do you damage, it will if you give it the opening.

Be aggressive with the management … really aggressive … even to the point of sacrificing profits to ensure against losses. Maneuvering for another shot at a profitable trade is way, way easier than trying to recoup losses.
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MARCH Corn & MARCH Wheat
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First let me say and please listen closely … ANY BUY I DO, I DO NOT EXPECT PROFITS BEYOND 2.00. Trade accordingly. If you are trading Corn right now you best be in a scalping frame of mind or I guarantee you will drop 20 cents in the next month trying to get on winning position trades. I'm going to watch both Corn and Wheat tomorrow. I'll share a play with you in the Update tomorrow night. Tom

The forum script is having a bit of an issue with the new server. Shaggy is working on making them more polite to each other. We apologize for the interruption and inconvenience!

Thanks for tuning in.
-Tom
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Asher's Stats
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Asher's trading-price Ranges, Breakouts, and Pivot Point calculations for Corn, Canadian Dollar, Silver, and Soybeans for each day. Fresh calculations for these and other commodities are sent out daily to subscribers, FREE. http://www.tradershelpingtraders.com/asherstatssignup.html
and posted to the site weekly: http://www.TradingThingys.com

Ashers site is one of the few that specializes in Pivots: http://www.supportandresistance.com/Asher/pivots.html
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The Commercial Stuff
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The Support and resistance manual upon which the trading analysis in this ezine is based, is available here: http://www.supportandresistance.com
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The Legal Stuff
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Trading commodity Futures and options on futures involves significant risk. You must consult licensed professionals or your own advisors before trading to determine if it is suitable for you. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. You must consult your broker or advisor before making any trade to insure current prices, margin requirements and other factors determinant to suitability.

By reading this newsletter you agree to make no trade relying in whole or in part on the comments of the writer. You agree before doing any trade contained herein to consult your charts and advisors to verify all information and make your own decision.

Being a successful paper trader does not mean that you will make money when you actually trade real money. Paper trading can NEVER approximate real money trading! Most individual traders who trade commodity futures or options lose money. Did you get that? MOST! Past Results are not necessarily indicative of future results. This publication is NOT to be construed as trading advice in any shape or form whatsoever.

Traders Helping Traders Big Weekend Edition -Part One

Need help with Entries, Exits and Trade Management? Read on!
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About this eZine:
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This is only Part One of a two part publication that is broadcast each Sunday. There are also two daily market updates each day of the week, 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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E-zine for the week 1-29-2005 - PART ONE
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In This Issue- Part One

1. Shootin' the Breeze
2. Live Class
3. The Markets
4. Pick of the Letter
5. Lesson du Jour
6. December Score Card
7. Homework

In This Issue- Part Two

7. Tom's Trades
8. Tom's Education Page
9. Asher's Daily Trading ranges
10. The Commercial Stuff
11. The Legal Stuff

Members with Track 'n Trade:
Download Erich's Chartbook for this week
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Member Links
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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 9pm 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. Jeff S. is recording the webinars whenever possible for those who can't attend, so watch the Support and Resistance Forum for links to view the movies. Grateful thanks to Jeff S.!
http://www.supportandresistance.com/futures-trading-classes.html
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Shooting the Breeze!
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What a week. It seems more like two weeks than one given all that happened last week. Actually it’s not that so much happened; rather it’s what happened.

Last Monday was our daughter’s birthday. While I can’t tell you how old she is (she’d kill me) I can tell you she’s old enough to be living on her own for a few years. This particular birthday she was feeling a little blue, as birthdays are apt to do for a lot of people. She was a little depressed about getting older and was taking inventory of her life, counting what she had done versus what she thought she would have done. Like many of us, reality comes up short of our dreams.

She had gone out the night before to drown her sorrows, but found out the next day that sorrows know how to swim, and she had a hangover to boot. We brought her flowers with her birthday gift and found that her boyfriend had also brought her a couple of dozen roses and she had gotten flowers from some of her friends as well. There were so many flowers on the table that it was almost like living in a florist shop.

She said she didn’t feel like going out to celebrate her birthday, but her boyfriend insisted. We ended up going to a very nice French restaurant near the harbour, and given that it was a Monday night, we had the place all to us, just our daughter, her boyfriend, my wife and me, and her boyfriend’s father.

Her boyfriend ordered champagne and made a very nice toast to our daughter for her birthday after which he promptly got on one knee and proposed marriage to her. Her mother and I were both dumbfounded. Neither of us saw it coming. You could have knocked me over with a feather. She said “yes”.

You know that scene in the movie “Father of the Bride”, where the daughter announces her engagement to her parents and in the father’s mind she reverts back to a six year old girl? Well I can tell you that it happens exactly like that. In fact I’m still reeling from the shock (but don’t tell anyone).

It might take me a few more days to get used to this idea; after all it’s only been a week. I’ll let you know if it gets any better

Enjoy this week’s issue.

-Erich
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The Markets!
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There is considerable monetary risk associated with trading commodity futures. Never place at risk more than you can comfortably afford to lose! Charts are all courtesy of Gecko's Track 'n Trade. You may request a free CD or download a free demo here.
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March Corn CH5
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* Exchange: CBOT
* FND 2/28/05
* LTD 3/14/05
* Option Expire 2/18/05
* Contract Size: 5000 bushels
* Point Value: 1 ct = $50
* Trading Hours 10:30 am – 2:15 pm EST

Not much changed for corn last week. The market did rally briefly before finding resistance at 201. No real surprise here as we saw it coming. The only real difference is that prices ended up breaking the contract low last Thursday as corn formed support on 195 ¼ before the weekend. While this is technically a new low, it is still close enough to the old support level to be considered one and the same.

This Week:

Same old dilemma for us corn traders this week, namely the heavy weekly support at 192 which is likely to give us problems on the way down. While we have an excellent support level at 195 to enter the market short from, the 192 level makes it nearly impossible to position trade this market at this time. Simply put, there’s not enough profit potential available to make a trade worthwhile.

While I’m reasonably confident that we will see corn continue lower, I’m equally as confident that corn will continue to flounder. Your long term charts show serious support, both on the weekly and monthly, at current levels and this is giving sellers some pause. If we see a test, or break of 192 I would be prepared to get more aggressive selling the market, but right now if feels more like traders are looking for an excuse to buy; however there isn’t one.

We’ll keep an eye on how this progresses, but right now there’s nothing too promising.

Trade Summary
* FLAT March Corn

Click here for the Market Minutes Audio Commentary on Corn
Daily corn chart here
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March Cotton CTH5
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* Exchange: NYBOT
* FND 2/21/05
* LTD 3/8/05
* Option Expire 2/11/05
* Contract Size: 50,000 lbs
* Point Value: 1 point = $5
* Trading Hours 10:30 am – 2:15 pm EST

Cotton is the trade “that got away” last week. While we were primarily focused on buying the market above resistance, the continued struggle did get me thinking about shorting. RSI was also showing us some divergence, which further hinted toward a weak upside; however I was looking for a much more moderate reaction to resistance than what we got. Cotton literally took all the profit out of the trade in a single day.

This Week:

As much as I would like to sell cotton at this point I think we have to be very careful about our entry. It seems obvious that prices have “re-set” themselves to a downtrend; however the weekly chart shows that we’re trading as a pretty significant support level. I’m hoping that this support will hold going into this week, at least for a few sessions, and allow prices to “normalize”. Any pullback in prices would be seen as a better selling opportunity, but timing will be everything.

I believe that Friday’s low, and higher closing price, was actually a reaction to the 4250 support line. Given that prices showed us some sensitivity here I might expect to see the market test resistance before falling off again. To the upside I would look for a reaction either at 4500 or more likely at 4570 before falling off again. I’ll also be watching the RSI indicator to help me time an entry by watching for a “test point”.

Until then however I’m going to have to stand aside as the wild ranges of the last two days just make this market too risky to try and sell at this point in time.

Trade Summary
FLAT March Cotton

Click here for the Market Minutes Audio Commentary on Cotton
Cotton chart here
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March Bean Oil BOH5
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* Exchange: CBOT
* FND 2/28/05
* LTD 3/14/05
* Option Expire 2/18/05
* Contract Size: 5000 bushels
* Point Value: 1 cent = $50
* Trading Hours 10:30 am – 2:15 pm EST

Here we are again with bean oil. Like many of the grains, this market should be heading lower; however the abundance of long term support is making it difficult to take prices any lower. Look at your weekly chart and you will see plenty of support at the current lows. And while prices did break the weekly support ever so slightly, it remains to be seen if the market has enough momentum to take it lower.

This Week:

If you shorted bean oil last Thursday when prices broke support, Friday’s session would allow you to bring your stops to (or near) break even. If you did not sell the market last week, we have another chance to sell bean oil below last week’s low.

I would probably not sell bean oil until I saw prices break last week’s low and the “magic” barrier at 1920. Given the small profit potential before the weekly support at 1850, we would have to keep stops relatively tight and place them just above the 1940 resistance. Ideally putting the stops above the 1945 resistance would have been better, but it would screw up our risk/reward ratio.

RSI has broken the trendline so I’m hoping that this will confirm lower prices this week. I was hoping to find a secondary support level below 1850; however the weekly chart shows a lot of activity near here, so I think the wise thing will be to respect the support and either exit on target or tighten stops as we get near. There’s not a lot of profit potential here; however if we break 1850 then things begin to loosen up a bit.

Trade Summary

* SELL March Bean Oil at 1919
* Exit Order: 1941
* Approximate Risk Exposure: $132 per contract
* Profit Target: 1852
* Approximate Potential Profit: $402 per contract
* RRR: 3:1
* Degree of Risk: Low to Moderate

Click here for the Market Minutes Audio Commentary on Soybean Oil
soybean oil chart
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April Live Cattle LCJ5
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* Exchange: CME
* FND 4/04/05
* LTD 4/29/05
* Option Expire 4/03/05
* Contract Size: 40,000 lbs
* Point Value: 1 point = $4
* Trading Hours 9:05 am – 1:00 pm EST

We picked up about $600 shorting cattle last week before prices found support near the trendline. By the end of the week the market had made some modest gains; however we’re currently at an RSI test point so prices really could go either way.

This Week:

While beef prices remain strong, seasonally we are at a weak time of the year. Friday’s session, with the closing price near the open, clearly shows the market’s indecision about committing to a direction. Technically the market is still bullish, but not by much. A lower session on Monday could easily swing the trend to the downside.

While I would normally wait for prices to confirm resistance or support before committing to the trade, we’re currently at an RSI test point, which should see prices commit to a direction, one way or the other. For this reason I would be inclined to treat Friday’s range like a channel and trade the breakout to either side.

To the upside I would buy a break of Friday’s high and look to cover the trade if prices dropped off below the 8800 resistance. This would have approximately $200 at risk. First profit target is the contract high, or more accurately the weekly resistance above the contract high at 9065.

To the downside I would sell a break of the low and cover the trade at 8750 resistance. I wouldn’t normally sell a market with so much support on the low; however given the RSI test point I am expecting to see a bounce and this should translate into lower prices. Again there would be approximately $200 at risk per contract. Profit target is the support at 8530 which roughly corresponds with the support on the trendline (drawn below the most recent lows).

Given our tight entries to either side it is important that the market not gap our entry on Monday.

Trade Summary

* BUY April Live Cattle at 88.525
* Exit Order: 87.975
* Approximate Risk Exposure: $220 per contract
* Profit Target: 90.65
* Approximate Potential Profit: $850 per contract
* RRR: 3 1/2:1
* Degree of Risk: Moderate

-OR-

* SELL April Live Cattle at 87.025
* Exit Order: 87.575
* Approximate Risk Exposure: $220 per contract
* Profit Target: 85.35
* Approximate Potential Profit: $670 per contract
* RRR: 3:1
* Degree of Risk: Moderate

Click here for the Market Minutes Audio Commentary on Cattle
Live cattle chart here
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March Cocoa CCH5
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* Exchange: NYBOT
* FND 3/1/05
* LTD 3/16/05
* Option Expire 2/4/05
* Contract Size: 10 metric tons
* Point Value: 1 point = $10
* Trading Hours 8:00 am – 11:50 am EST

Cocoa was an exceptionally strong market last week as prices rallied on Wednesday before stalling by the weekend. I tried to find some fundamental explanation for the rally; however the best I could come up with was a news source that said “there were more buyers than sellers”. Good ole fundamentals...I knew I could count on them to explain the rally. ;-)

This Week:

Regardless of the reason behind the rally, prices are obvious in a strong uptrend, at least for the short term. Friday’s lower session, combined with the lower close, is a classic signal that prices have found resistance and are ready to continue lower. While I normally would consider this to be a countertrend trade (and therefore avoid it) the setup is almost too good to be true.

The problem with selling cocoa from this level is compounded by the 1550 support. I considered waiting for prices to break the 1550 support line before selling; however this would have made the trade more risky as we would likely have been filled near the end of the session. That would mean that we have to hold the trade at least two days before being able to move our stops – not an ideal situation, especially for a market like cocoa.

The alternative was to accept the higher risk by selling cocoa before the 1550 resistance, but covering the trade tightly in the event of a bounce from the support line. This would allow us to keep risk relatively small if we’re wrong, but give us the added flexibility of being able to adjust stops quickly (ie. the next day) if we’re right.

Therefore, selling cocoa below Friday’s low I would place exit stops above the 1570 resistance for $140 risk per contract. First downside target is the support at 1515; however we could see prices fall to 1475 before reacting. Watch you RSI indicator as well as prices head lower. Expect prices to find support as we get closer to testing the trendline.

Trade Summary

* SELL March Cocoa at 1557
* Exit Order: 1571
* Approximate Risk Exposure: $140 per contract
* Profit Target: 1516 (1476)
* Approximate Potential Profit: $410 per contract
* RRR: 3:1
* Degree of Risk: Moderate to HIGH

Click here for the Market Minutes Audio Commentary on Cocoa
Cocoa chart here
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March Wheat WH5
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* Exchange: CBOT
* FND 2/28/05
* LTD 3/14/05
* Option Expire 2/18/05
* Contract Size: 5000 bushels
* Point Value: 1 ct = $50
* Trading Hours 10:30 am – 2:15 pm EST

The wheat commentary is going to sound a lot like the other grain markets we cover. Wheat too wants to head lower; however the abundance of long term support below current prices is making selling the market quite tricky. We ended up selling wheat last week on a break of support, but prices did take a stab at our stops before the weekend.

This Week:

If you are currently short wheat and haven’t done so already, bring in your exit stops to just above Friday’s high (ie. breakeven). We might see wheat make a stab at resistance, which it is inclined to do after a big decline, but I think for the longer term we will see prices decline to the weekly support at 284 followed by 278. Hopefully we will be able to ride out the market and see a lower session on Monday.

If you’re not currently short wheat you could consider selling the market on a break of last week’s support at 288 ¼. There isn’t a lot of profit potential here before the second support target, so it will require keeping a rather tight stop on the market – which might in turn increase the likelihood of a whipsaw.

Selling wheat at 287 ¾ I would place the stop above Friday’s close at 290 ¾. First profit target is the 278 support, but watch out for a possible reaction at 284. Hopefully we will be able to get stops to breakeven by that time however.

If prices do head higher this week, look for a possible reversal from the 295 resistance. We’ll have to see how the week shapes up; if it looks doable we might even try selling the market early, in anticipation of the 295 resistance holding. After all, it is a monster resistance area.

Trade Summary

* SELL March Wheat at 287 3/4
* Exit Order: 290 3/4
* Approximate Risk Exposure: $150 per contract
* Profit Target: 278 3/4
* Approximate Potential Profit: $450 per contract
* RRR: 3:1
* Degree of Risk: Moderate to HIGH

Click here for the Market Minutes Audio Commentary on Wheat
Sugar chart here
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March Canadian Dollar CDH5
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* Exchange: CME
* FND 2/28/05
* LTD 3/15/05
* Option Expire 3/04/05
* Contract Size 100,000 CD
* 1 point = $10
* Trading Hours 8:20 am – 3:00 pm EST

The Canadian Dollar proved to be quite choppy last week, and while we called the market’s direction pretty well, the large ranges handed us a spanking and whipsawed us last Thursday. Thank goodness we had the sense not to try the trade again on Friday or we would have experienced a similar result as rates bounced on the 8017 support.

This Week:

Trading the CD from current levels is quite a challenge, at least from the point of view of keeping risk to a minimum. I want to short the market from the solid support at 8017 (note the other spike at 8018) but the small gap in this area from mid-October is giving me pause. The gap is far enough away that we can’t straddle the gap and the support without putting a lot of money at risk. Combine this with the US interest rate announcement due out at the end of the week, which will undoubtedly effect the CD’s rates, and we’ve got ourselves a tricky little trade scenario.

About the only way I can see making this trade work is to be aggressive on selling and short the market on a break below the 8017 support. Given the high closing price, I would think the momentum required to bring rates back down to, and below this level, will have to be substantial; however getting filled will be the easy part.

If rates trade below 8017, they will have completed a 123 top formation – this always makes me a little nervous. 123 tops are so common place that many traders will be jumping onboard the bear train when we get a breakout, the downside is that markets have a tendency to “react” to this level as well, and as such we could see another big range and another whipsaw.

The other problem is the support at the gap from mid-October and the support just below the gap around 7950, which is pretty darn close to the 38% retracement level. Given that all this support is so close, it might be very difficult to get the trade to breakeven before a possible reversal.

If we do get filled short, the first protective stop will go above the 8035 resistance. This is a semi-arbitrary number, pulled from the intraday chart, and is certainly not the way I like to do this; however there wasn’t anything else around to keep risk to a reasonable level. The only thing worse than being wrong about a trade is: being wrong and losing a lot of money.

First profit target is support at 7915; however the obvious support target will be the 50% level – or the support near it at 7850, where we are likely to see a reaction. This trade will definitely need a little bit of luck to make everything work out according to plan.

Trade Summary

* SELL March Canadian Dollar at 8014
* Exit Order: 8037
* Approximate Risk Exposure: $230 per contract
* Profit Target: 7916
* Approximate Potential Profit: $980 per contract
* RRR: 4:1
* Degree of Risk: HIGH

Click here for the Market Minutes Audio Commentary on the Canadian $
Canadian dollar chart
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March Silver SIH5
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* Exchange: COMEX
* FND 3/14/05
* LTD 3/29/05
* Option Expire 2/23/05
* Contract Size: 5000 Troy oz
* Point Value: 1 cent = $50
* Trading Hours 8:25 am – 1:25 pm EST

Silver prices climbed slightly higher last week but showed a little bit of resistance around the 690 area. As you remember I wasn’t too interested in buying silver given all the resistance at 690 and again at 710, and now it looks as though silver might have had a change of heart and is ready to head lower again.

This Week:

What is making think that silver is ready to head lower again is the RSI indicator. Notice how it is sloping downward, and testing the trendline while prices have been heading higher. This is a mild form of divergence, but what really has me interested in this market is the RSI trendline test.

Silver has already made three bounces off the trendline, so traditionally the four bounce becomes a break. For this reason I would look to sell silver early, below the 673 resistance, if prices fall off this week. Exit stops would go above the 677 resistance for $275 risk – which is not too bad for a market like silver.

First profit target is support at 647, but I think we would see 635 – 640 before another possible reaction. Prices might not be as aggressive to the downside as they have been in the past; however I’m pretty confident that a break of 673 will see prices head lower for the short term.

Trade Summary

* SELL March Silver at 672
* Exit Order: 677.5
* Approximate Risk Exposure: $275 per contract
* Profit Target: 647
* Approximate Potential Profit: $1250 per contract
* RRR: 4 1/2:1
* Degree of Risk: Moderate

Click here for the Market Minutes Audio Commentary on Silver
Silver chart
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December Eurodollar EDZ5
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*Exchange: CME
*Contract Size: $1,000,000
*Point Value: $25
*FND 12/19/05
*LTD 12/19/05
*Options Expire 12/19/05
*Trading Hours 8:20 am – 3:00 pm EST

The Eurodollar is another market where not too much has changed since last week. The ED spent most of the week in decline before recovering in a big way on Friday. The problem with buying the ED higher is that at these levels, it doesn’t make sense.

This Week:

In fact, with the US interest rate announcement due out this Friday I think we can expect the ED to be a little unpredictable as traders try to align themselves with what they think will happen to interest rates. While the ED gave us a strong reaction to support on Friday I can’t bring myself to buy this market – yet. Technically and visually we are still in a downtrend and I would expect to see rates find resistance soon, maybe as early as 9641.

If rates continue higher through 9641 then they will likely retrace to the 38% retracement line at 9650 before recovering. Just like last week I’m looking for a reaction to resistance as a signal to sell the market again. I’m still avoiding the countertrend buy, at least for now.

Trade Summary
* FLAT December Eurodollar

Click here for the Market Minutes Audio Commentary on the Eurodollar
Eurodollar chart here
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This Week's Wild Card Trade!
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No Wild Card – yet!
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Pick of the Letter
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Instead of just picking one market to follow in the Pick of the Letter, I’ll be listing what I consider to be the three best opportunities for the week coming.

The reason is that many of you are looking for more than one market to follow and are confused as to which your best options are, so I’ll give you my two cents worth. Bear in mind that this is strictly my opinion, and you should still paper trade whichever markets look best to you.
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Pick #3 – SELL March Silver
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I’m excited about the 690 resistance and the RSI test point, both of which make me think that silver’s heading lower this week. The 673 support should be strong enough to keep us on the right side of the market.
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Pick #2 – SELL March Bean Oil
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We finally saw bean oil test the weekly support at 1930 last week and now we can sell the market with greater confidence, the only downside is that there isn’t a lot of profit potential before the next support level.
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Pick #1 – BUY/SELL April Live Cattle
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The cattle market is at an interesting crossroad: prices are bouncing off the trendline, but RSI is showing a test point which could lead to lower prices. Prices are essentially directionless, so the market could go either way from here.
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The Score Card
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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 will be updated monthly.

Summary for the Month of December 2004
Table included in full version, can't be reproduced here.

* 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
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Question:

I am curious about how you got into trading? You have made some references in the forum that you had a business and were unhappy, discovered trading and have made the change. If it is not too imposing, I like to hear more about your "journey" and some of the milestones.

Answer:

So you're interested in my trading/life story are you? Okay, here you go...I hope you're not disappointed! LOL!

Commodities first peaked my interest in the mid-70's when the Hunt brothers were trying to corner the silver market; however at the time I had no idea how anyone would go about trading silver, short of buying and selling it like bullion. I pretty much forgot about trading until I received a Ken Roberts brochure in the mail about twenty years later.

The direct mailer found me at a time in my life where finances were very tight. I had an owner/operator trucking business and was spending 10 - 14 hours a day on the road. I was never home and when I was, I was too tired to do anything but sleep. But like most people I couldn't afford not to work so I felt trapped.

The "promises" of the mailer were too much too ignore, so I scrapped up the $200 and sent for the materials. I read the course several times and began papertrading in earnest. After three months I thought I knew it all and had squirreled away about $2500, so I decided to open an account and give it a go.

Needless to say, like most trading newbies, I thought I knew it all - but in actual fact I didn't know anything. I still remember my first trade: I was buying corn on a channel breakout and I had $1000 at risk. Remember, I only began with a $2500 account...I was scared senseless! Once the buy order got filled I didn't sleep much until I exited the trade about a week later with $1000 profit. I thought I'd died and gone to heaven - this was easy!

My next few trades were a blur as I thought I was a "high roller". I remember speaking to my broker (one of KR's) about getting an option in silver. KR used to preach continuously about his silver option plan, whereby he was always buying silver options to cover himself for silver's eventual recovery, so I thought I'd better do the same. My broker ended up selling me a silver option for $650. At the time I remember getting a pit in my stomach at the thought of spending so much money, but I bought it anyway. I must have had rocks in my head.

After buying my silver option I started dabbling more in options, which I didn't know anything about, but that didn't stop me. I remember buying a cocoa call option and having the value explode $1000 overnight. I thought I was at the beginning of a run until the next day when the market took back the $1000 profit. Too dumb to exit at that time, I held on until the cocoa option expired worthless.

Another time my broker's assistant gave me a scoop. He said that Ken Roberts himself had come to the office and was telling people that cocoa was going to make a run (this is a different time than the one above). I picked up a couple of cocoa call options and sat on them for a few weeks. In a couple of week's time they had appreciated about $600 each and my broker's assistant asked if I wanted to bank my profits. Thank goodness I said “yes” because a few days later the market fell off and I would have lost what little profit I had.

In the meantime my silver option wasn't doing so great. Each day the value diminished a little more, even when prices were going my way - I couldn't figure it out - but I didn't know about time decay, delta and all the other things that can hinder an option's performance. So while my silver option continued to decline I decided to switch to gold.

Gold had just completed a 123 bottom formation and I was sure it was going higher. By this time I'd depleted my account to the point where I was stuck buying options since I couldn't afford to margin a futures contract. I remember holding 4 gold call options when my broker called and suggested I consider buying gold call options.

Obviously my broker hadn't even bothered to check my account before calling to "churn" me! While I already owned four options, my broker's interest in gold made me buy another three options, which is all I could afford. Needless to say the bottom fell out of the gold market, and instead of ditching my options early, I held on in desperation until they all expired worthless.

That was account number one.

The second account was opened a few years later, with similar results. This time I went to a "discount" broker who still offered order placement services. While the commissions were less brutal than the first time the results were about the same. During my trading hiatus I had returned to papertrading and thought I'd figured out my previous mistakes. I studied everything I could about trading systems and options in particular. I thought I knew what I was doing so I opened another account thinking I was going to get even with the markets this time.

Professionally my life had changed from having a trucking business to working with my wife on her business. My trucking business followed a similar path as my first trading account. Work was busy, as I mentioned earlier too busy, when someone approached me about hauling for them. Their contract would require a larger truck than what I had been using, but the work was "guaranteed".

I spoke to my wife about it and decided to give it a try. I committed for the larger truck (along with the bigger payments) only to find out that the work was not guaranteed. There were a couple of lean months when I struggled to find enough freight to make hauling worthwhile...but in the end all worked out. That is until about a year later when in one week my two best customers' dropped me: one decided to buy his own delivery vehicle; and the other had a heart attack and closed his business. Talk about a blow! I didn't know what to do. After a lot of careful consideration I decided to get out of the trucking business and help my wife with her business.

My wife had been working as a realtor but the business was so cutthroat she had taken a job as a realtor's assistant. During her time as an assistant a friend of the realtor inquired about an assistant for her ski accommodation rental business. To make a long story short, my wife ended up taking the job and a couple of years later buying the business.

It was a good business, but very demanding. When ski season hits, you're on call 24/7. There are a couple of slow months in the summer, but otherwise you're always on the phone from September to April, making reservations, etc. At least it was a nice change of pace for me, and it allowed my wife and me to spend more time together...even though it seemed that we were always working.

The seasonal nature of the accommodation business allowed me to continue to study and trade - full time in the summer and part time in the winter. My trading suffered the same results as before. I would look at the charts but not have a clue where was a good entry, exit or when I should take profits. Yes, I knew you should have a 3:1 reward/risk ratio, but that was theory and I didn't know how to apply it practically, especially with options.

Yes, I was back to option trading. This time my broker was trying to teach me about "synthetic futures" using options. I was trying to do butterflies and spreads and every conceivable option strategy under the sun. I had read about the Phantom of the Pits and studied his strategies and teachings. Unfortunately his advice is rather vague...but he seemed to like options so I stuck with them. I remember doing a silver call spread in which I had $900 in profit (in theory) but got creamed when I tried to exit the trade. The slippage cost me $400 and I walked with approximately half my profit.

Account number two came to a close when my broker got transferred and the brokerage wanted me to use another of their brokers. At this time it was obvious to me that my existing broker, as well as the one I was getting transferred to, didn’t know a lot more about trading than I did...I closed the account with only a few hundred dollars left.

Needless to say I was pretty frustrated with trading at this point, but I refused to give up. I knew there had to be a way to make money doing this, so I kept at it. If you haven't already guessed, I've got a bit of a stubborn streak...my wife spells that s-t-u-p-i-d.

I continued to learn as much as I could about trading, mostly from the internet. At one of the trading forums I discovered a fellow by the name of Tom Loge' who was quite the option trader (old habits die hard). At another forum was a fellow by the name of Michael ^8^ who also gave very good advice. I continued to study and learn sending for the odd course in the process. One of these courses had to do with support and resistance trading; however while the concept seemed sound the materials had a lot of holes in them and were open to considerable interpretation. Even so I stuck it out and little by little I began to get a handle on trading.

I did more study about support and resistance as well as moving averages and RSI. Essentially I was beginning to build my own system. For the first time in a long time my papertrading was beginning to show results, but unlike before I wasn't hurrying to open another account. This time I wanted to be sure.

When I finally did open another account I did a couple of things differently:

1. I traded very slowly and
2. I didn't trade options.

I stuck with only the markets that seemed to have the best volume and open interest and took only the most promising looking trades. For a change I was making more money than I was losing. I continued to study and paper trade and learn as much about trading as I could. Occasionally I would stumble a bit, but I always went back to what worked - which is essentially all the material that is in the manual.

About this time I was helping out at another commodity trader's website (for free) just because I saw so many newbie questions that were going unanswered, or weren't answered very well. When this particular trader's site was eventually shut down, I had become interested in the educational aspect of trading and my own site was born. A few month's later, Tom left the brokerage he was working for, and the rest is, as they say, history.

Regarding trading for a living, most people have a vision of walking into the boss' office one day and telling him to put his job in a very dark, personal space. I've been self employed my whole life (except for two jobs) so I didn't have this transition. But even if I did have a regular job, I don't think the change is quite as dramatic as people envision. What I mean to say is, you won't wake up one morning and decide you're going to trade for a living. It's much more gradual than that. As you trade you'll struggle early on as you grapple with unfamiliar concepts and test the waters to find your own comfort level.

You need to learn how the markets work, and realistically this will mean trading (or papertrading) for at least a year, often for much longer. It's totally unrealistic to expect to paper trade for three months and then become a successful trader. Yes, it can happen, but it's very unlikely - sorry.

Realistically you should expect to hold on to your day job (or my personal favourite, have your spouse support you) for at least a year, probably two. One day however, if all goes well, you'll discover that your trading account is earning you more money than your pay cheque. This is usually the time you begin thinking about trading for a living. Remember though, you'll need a bank roll to live on and another to fund your trading. Trading is not like working. When you work, you put in your hours and you get paid. When you trade you put in your hours and you may get paid, or you may actually lose money working!

But my advice to you is not to rush. I hope you can see from my experience that rushing, and not knowing what you’re doing (really knowing that is), was my downfall on two separate occasions. You've heard it before, but there really is no rush to trade, and if you do rush prepare yourself to pay a very expensive tuition.

Erich

Got a question that needs answering like an itch you can’t scratch? Send it along to [email protected] and I’ll be happy to try and clear things up for you.
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Homework
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Last Week’s Question:

As support and resistance traders we have a tendency to “clutter” our charts with too many lines. Take a look at the Aussie Dollar chart below. Which lines would you classify as being the 6 most important?
Australian dollar chart here

Answer:

The point of this exercise was to get you to loosen up on your lines and learn to focus on the most important support and resistance areas. How do you identify the “most important”? Here are a couple of suggestions:

1. contract high – the contract high always deserves to be respected. If there is resistance near the contract high, I will often ignore the high and focus on the resistance instead.

2. contract low – ditto for the contract low. Again if there is a cluster of support near the low I will ignore the actual low and focus on the support level instead.

3. 50% retracement level – while many argue whether the 50% retracement is a natural occurrence or merely a self-fulfilling prophecy the fact remains that prices have a tendency to react to the 50% level. Unlike other traders however, I do not trade the 50% blindly; rather I will use the level to help me zero in on prominent resistance near the 50% level.

4. 38% level – just like the 50% level I use the retracement to help me narrow my focus on where to look for resistance.

5. 62% level – ditto

6. 20 day moving average – the 20 day moving average represents the monthly trend and will often approximate 50% of the current move. As with the other “tools” I only use the 20 day moving average to help me narrow my search for important resistance.

australian dollar chart

So which lines would I have chosen?

1. 7879 – contract high as well as being a weekly resistance level

2. 7760 – given that rates were heading higher it would be logical to assume that the AD was going to attempt to test resistance at 7800-ish; however this band of resistance just before 7800 is bound to get in the way – at least for the short term.

3. 7475 – a prominent resistance level right near the 38% retracement line.

4. 7370 – a prominent resistance level near the 50% level. Look further back in your chart to see more relevant activity here.

5. 7200 – support near the 62% retracement line. Currencies (as well as many other markets) also tend to favour whole numbers like this one. If rates fall off you can bet dollars to doughnuts that this will be an important level.

6. 6825 – not the contract low, but rather the support near the low. Again, if rates fall off and get through all the previous support then it is very likely that they will recover just shy of the contract low. If they actually test the contract low then there is a good chance that they will continue lower through the contract low.
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DISCLAIMER AND RISK DISCLOSURE
==============================
Futures Trading is Risky! Never trade with money you cannot afford to lose!

This publication 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.

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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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. Contact Erich at [email protected]

www.tradershelpingtraders.net
www.supportandresistance.com
204 Cowichan Avenue East,
P.O.Box 157,
Lake Cowichan, BC,
V0R 2G0
CANADA
Phone: 250.749.4191


Part Two o