Education

How to Trade Futures Along With the Smart Money


This is a great little article about ignoring ‘common wisdom’, at least inasmuch as it applies to setting your trading expectations.  One of the most important psychological elements of being a trader is being something of a maverick.  It is certainly more fun than following a herd of donkeys!
By Ross Beck | TradingMarkets.com | November 19, 2010 11:35 AM
 

I think we’ve all heard that 90-95% of futures traders blow up their trading account. How does that make us feel? These statistics may prevent some people from even trying. But is it possible to use these numbers to our advantage?

One of the most important concepts to understand regarding trading is that “the public” is always wrong. This can be useful information, however. To quote Larry Williams, “There is one little problem… WE are the public!”

In other words, we have to fight the traditional trading and investing programming that we’ve listened to our whole lives! We will no longer follow the herd; traders are mavericks. Therefore, don’t expect to win popularity contests in online trader chat rooms. Most of the these chat rooms are filled with paper traders who have yet to put money in the markets and who love to talk about the trades they “did” and how bright they are. If you feel a need to hang out in these chat rooms, I would suggest you enter these rooms to determine what trades most of them are taking and take the other side!

This may sound strange to you if you haven’t heard this before but we have to be a contrarian. If this philosophy is hard to swallow, consider the following facts. The Commodity Futures Trading Commission publishes a report every week called the Commitment of Traders (COT) report. The report is sometimes referred to as legal inside information due to the fact that any futures trader that holds a reportable position overnight has to inform the government. Reportable positions are open futures positions that are sizable and not typical of a small retail traders position.

From the COT data, we are able to determine what the net positions are for the large commercial traders and the small retail trader. Sometimes there is no significant difference between the commercials and the small traders (the public.) However when there is a significant difference, pay attention!

COT Chart

For example, let’s imagine that there has been a bearish trend in soybeans for the past six months. We look at the Commitment of Traders report and it says that the small retail traders are significantly more short than long. In fact, they haven’t been this short for about two years. Now we turn to the commercials and their net open positions. The COT states that the commercials are significantly more long than short, and they haven’t been this long for two years. This is useful information as the commercials and small retail traders are polar opposites at this point. Guess who is going to win this fight? Remember the golden rule? The one with the gold makes the rules? Yes, the commercials always win and the public is always wrong.

When you see the charts to prove the above COT example, you truly will become a believer in the fact that the public is always wrong! Armed with this contrarian information, we can give ourselves an edge when it comes to trading futures, and it will help us avoid staying in the 90-95% club.

Ross Beck, FCSI (AKA Mr. Gartley) is a Fellow of the Canadian Securities Institute and world renowned public speaker on technical analysis. Ross writes The Climb newsletter for Majestic Peak Trading and the Gartley Trader newsletter at gartleytrader.com. Click here for more information.

Friday, October 7th, 2011 Commodities, Education, Evergreen No Comments

ETF Trading with Larry Connors: Markets Price-In Bad News Ahead of Weekend


Here is some great end of week/end of month/ end of quarter analysis from Mr. Connors.  Pay special attention to this admonition: “But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial”.  In other words, don’t get caught with your SHORTS down!  :)
 
 
By Larry Connors | TradingMarkets.com | September 30, 2011 08:55 AM 

 

It’s only appropriate that the morning of the last day of the quarter is again dominated by negative news from Europe. The unwinding of long positions followed by the triage has led to one of the more volatile quarters in history. And the media, with their lack of insight, is having a wonderful day leading most stories with “this is the worst month (quarter) in X years for (fill in the index or commodity here)”.

The market is getting to the point where it’s now priced-in a lot of bad news. Should the news get worse, prices will move lower in Q4 (you don’t need me to tell you that). This is especially true as just about everything broke under its 200-day this quarter. But with short interest so high and everyone (except the long only crowd) positioning themselves for the worse, any good news is going to lead to large rallies. If the good news is structural, the rally could be very substantial.

For us, we’re going to continue to trade as we have. I’m very grateful for the high cash levels and the short positions we’ve had this past month and our traditional bear market portfolio has begun to take shape. Add the hedging in (for both the long and short side) and we’re well positioned to handle whatever the political and economic environment brings through the end of the year.

For today, the market is still in neutral territory and even though the futures are down 1% at 7 am, there’s still the potential for the powers that be to try to run the market higher as they did yesterday in order to make the month/quarter look better. Overall though, the trend is down and there is no short-term bias on either side (you can further see that with so few set-ups today in The Machine).

Have a great weekend!

The above is from Larry Connors’ Daily Battle Plan.

To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.

And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.

Larry Connors is founder of TradingMarkets.com

 
Friday, September 30th, 2011 Education, Larry Connors, Stock Trading No Comments

Financial Transaction Tax—Story of Failure

This horrible idea pops up in the U.S. every few years, too.  Apparently, politicians everywhere have a difficult time with the idea that there is chunk of money somewhere they aren’t carving a piece out of. 


 
Published: Tuesday, 27 Sep 2011 | 4:55 PM ET
By: Bob Pisani
CNBC Reporter
 

 

A financial transaction tax? It didn’t work when it was tried in Sweden.

Another potential factor in today’s late market drop: word that the European Commission will unveil a financial transaction tax on bond and stock trading, as reported by DealBook.

This is a variation on the Tobin Tax, first suggested by Nobel Laureate James Tobin, who proposed a tax on currency transactions.

France and Germany are reportedly in favor, but the UK and Sweden are not, and with good reason: it didn’t work when it was tried in Sweden.

In 1984 Sweden instituted an 0.5 percent tax on the purchase or sale of equities…a 1 percent tax on a round trip! It was doubled in 1986, and was subsequently modified depending on how long the security was held.

The result: taxable trading volumes fell, and the taxes collected were disappointing. Also, revenues from capital gains taxes fell at the same time (duh), so any gains from the transaction tax were offset by the fall in capital gains taxes.

The tax was abolished in 1991.

Read original article here

 

 

Wednesday, September 28th, 2011 Education, News, Stock Trading No Comments

New Market-Wide Circuit Breakers Coming

Circuit breakers are more apt to make us think about our houses electrical system than trading, but Bob Pisani has an interesting post about coming changes to systemic ‘circuit breakers’ in the stock market.  Aimed at avoiding a cascading failure in equity prices, circuit breakers give everyone some time to catch their breath and let go of some panic – and with some of the gut churning drops we’ve had in recent years, it looks like the SEC wants to make these a bit more frequently invoked.

 

Published: Tuesday, 27 Sep 2011 | 1:30 PM ET
By: Bob Pisani
CNBC Reporter
 

After much delay, the SEC is filing proposals to revise the existing market-wide circuit breakers.

The changes reduce the percentage declines needed to halt trading and simplifies the structure of the circuit breakers. It also changes the reference index from the Dow Industrials to the S&P 500.

The current circuit breakers, adopted in October 1988, kick in when the Dow Industrials drop 10, 20, and 30 percent.

The only time the circuit breakers actually kicked in was Oct. 27, 1997, when traded was halted twice.

And that’s the problem: they were useless during the “Flash Crash,” because the Dow never dropped more than 10 percent.

The SEC has put out the proposed changes for a 21-day comment period.

The changes will greatly simplify the current cumbersome structure. It will:

1) Reducethe market decline percentage thresholds necessary to trigger a circuit breaker. Instead of 10, 20, and 30 percent declines, the threshold will be reduced to 7, 13, and 20 percent declines from the prior day’s closing price.

2) Shorten the duration of the trading halts to 15 minutes.

3) Simplify the time when the trading halts kick in. Now there will be only two trigger periods: those that occur before 3:25pm (when trading would be halted for 15 minutes), and those that occur on or after 3:25pm, when there would be no halt in trading.

4) Recalculate the trigger thresholds on a daily, rather than quarterly, basis.

The individual stock circuit breakers, which halt trading if the price of an individual stock moves 10 percent or more in a five-minute period, remains in effect.

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Read original article here

Tuesday, September 27th, 2011 Education, News, Stock Trading No Comments

Entitlement Cuts Needed, But Who Has Guts to Do It?

Published: Wednesday, 14 Sep 2011 | 12:59 PM ET
By: Jeff Cox
CNBC.com Senior Writer
 

 

 

Jon Corzine left government reluctantly, but there’s at least one reason why he doesn’t mind being out of office.
Dealing with the current federal debt[cnbc explains] and deficit problems, he said, is a job someone else can have.

That’s because he and fellow panelists gathered at the Delivering Alpha conference Wednesday agreed that controlling costs of large-scale entitlement programs such as Medicare and Medicaid are at the core of getting spending under control.

For those uninitiated in the way of U.S. politics, those programs are considered the proverbial third rails—touch them and you die.

“Entitlements absolutely have to be addressed in a way that I would have been uncomfortable talking about as an elected official,” said Corzine, the former New Jersey governor and U.S. senator. Republican Chris Christie defeated Corzine in the 2009 gubernatorial race.

The remark was telling during a lively debate over just what policymakers can do to address the U.S. spending issues. The federal budget deficit is approaching $1.5 trillion and the national debt is $14.5 trillion and growing.

Despite agreement that the issue must be addressed, reaching consensus on how to go about it is a difficult exercise. The problem is that cutting off spending could stymie growth, but allowing the debts and deficits to continue to balloon unabated pose what could be an even greater threat to national economic stability, as resources are diverted towards paying foreign creditors.

“There’s no question that in order for us to do right, we’re going to undergo less growth than we hoped for and less growth than a lot of people expect,” said Thomas F. Steyer, senior managing member at Farallon Capital Management. “Do I think it’s going to affect the way I am investing and the ways I think about the future? Yes, I do.”

Yet the notion that Washington will take away benefits from its big-ticket entitlements is troubling to some at at time of economic malaise.

As such, the populist battle to preserve the social compact against the practical realities of fiscal management continues to rage.

“This is a conversation about the responsibility of America’s elite. America’s elite is on this panel and gathered in this room. Exactly what level of responsibility do you people take to the rest of the people in this country?” said Damon Silvers, director of policy and special counsel for the AFL-CIO. “By cutting off the health care to poor, elderly Americans, think about what the public response to you might look like over the next generation.”

But Emil W. Henry Jr., former assistant Treasury secretary and CEO at Henry, Tiger, said the U.S. needs political change to take on difficult issues that are being ignored by the Obama administration.

He cited a speech earlier in the day from current Treasury Secretary Timothy Geithner as being evasive on what the White House will to do foster economic growth.

“Growth is the answer. I think (Geithner) gave lip service to growth,” Henry said. “I haven’t seen a single growth policy out of this administration.”

Ultimately, according to Corzine, who currently runs MF Global, resolving the issues may fall to those who are willing to sacrifice their political future.

“Politics is not going to go away,” he said. “People have to be willing to lose to have society win.”

Wednesday, September 14th, 2011 Education, News 1 Comment

Cramer: Off the Charts: Tech-Buying Season

Jim Cramer does a decent job of analyzing the relative performance of SOXX vs. QQQ, and discussing what that might mean for the next few weeks / months in the tech markets.




Wednesday, September 14th, 2011 Education, ETF, Jim Cramer, Stock Trading No Comments

Cramer: Dividends Trump Buybacks

Published: Monday, 12 Sep 2011 | 7:41 PM ET
By: Michelle Fox
Web Producer
 

Stock buybacks are often like pouring money down the drain, Cramer said Monday. He thinks dividends are a much better way of returning capital to shareholders.

“Dividends put money right in your pocket,” he said. “Buybacks are supposed to help support the share price, but when you look at the actual results, the idea that most buybacks return anything to shareholders has begun to seem nothing short of fanciful.”

To prove his point, the “Mad Money” host took a look at the companies he calls the most egregious users of buybacks—Cisco[CSCO  16.09  ---  UNCH  (0)   ], Wal-Mart Stores[WMT  51.39    -0.43  (-0.83%)   ]and Exxon Mobile[XOM  71.27    -0.57  (-0.79%)   ].

Over the last five full fiscal years, Cisco spent $36.4 billion buying back stock, yet its share price still dropped by 10.7 percent. If the company had returned that money to shareholders in the form of a dividend, Cramer said, it would amount to $5.97 a share in dividends over that time period. Assuming the stock’s performance was the same, and not a 10 percent loss, you would have had a 22.3 percent gain.

Wal-Mart spent $35 billion buying back stocks, which Cramer said would have translated into $8.33 a share in dividends. The retailer is up 15 percent over the last five fiscal years, or 27 percent including the company’s current dividend program. Assuming Wal-Mart shares delivered the same performance instead of a 27 percent gain, shareholders would have seen a 33 percent return if the buyback money went to dividends.

And finally, Exxon Mobile spent $130 billion on buybacks during the five year period, which is enough money to have covered $21.31 per share in dividends. The company gave shareholders a 45 percent return, including dividends, during that period. But if it had not bought back stock and instead boosted the dividend, assuming the stock went up the same amount, shareholders should have gotten a 68 percent gain.

Cramer also likes that dividend yields get bigger as a stock goes down. But when a company buys back stock and the share prices go down, he said, there is no benefit.

What’s more, short-sellers hate to bet against stocks with dividends because when they borrow shares in order to short them, they have to cover the dividend payments as well.

“All a buyback really seems to do [is] give management the ability to shrink the share-count in order to produce, I think, artificial earnings beats,” Cramer said. “Shame on those who keep buying back their stock in light of these very telling numbers.”

 

 

 

 

 

http://www.cnbc.com/id/44488056

Tuesday, September 13th, 2011 Education, Evergreen, Jim Cramer, Stock Trading No Comments

Charting the S&P 500

The pattern is looking a bit more like a bear flag to me, but this fella makes a decent case that this year’s lows have printed.See what you think:
Stock Assault 2.0 - Artificial Intelligence Stock Market Software

Stock Assault 2.0 - Artificial Intelligence Stock Market Software

 

 

 

 

 

 

 

http://www.cnbc.com/id/44494688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tuesday, September 13th, 2011 Education, Stock Trading No Comments

‘Buy All the Euro You Can’ If Greece Defaults: Jim Rogers

Published: Friday, 9 Sep 2011 | 12:54 PM ET



A Greece bankruptcy would actually be a good thing because “it’s time for people to acknowledge reality,” well-known investor Jim Rogers told CNBC Friday.

“If you’re bankrupt, go bankrupt, reorganize,” Rogers said. “Countries have been going bankrupt for centuries, there’s nothing new about it.”

Stocks tumbled Friday amid renewed fears that Greece may default on its debt, as well as the sudden resignation of a key policymaker of the European Central Bank.


Rogers said that if Greece defaults, some other countries will default too—Italy, Spain, Ireland and a few others.

If this happens “the euro will go down a far amount. But I would buy all the euro I could at that point because then that would mean that Europe is going to have a very strong, sound currency,” he explained. “People can not lie about their finances anyone, people have to run a tight ship.”

 ”It would be a lot of pain between now and then, but boy if that happened in the next month or so, buy all the euros you can,” Rogers said.

The new head of the IMF has said to the [euro zone], ‘guys you’ve got to raise more capital’ [and] they do. They’re the ones who bought all this garbage, why should you and I and Finnish taxpayers bail out banks that made mistakes? I didn’t make those loans, they made the loans,” he explained.

In addition, Rogers went on to say he was long the U.S. dollar. “The only reason I’m long…is because everybody in the world, including me, has been terribly pessimistic. And whenever that happens you should take the other side of the trade.”

 “So I’m long the U.S. dollar, I have no confidence in it, its going to be a diaster, but as we speak I own probably more U.S. dollars then I’ve owned in years, and certaintly more than any other currency.”

Monday, September 12th, 2011 Education, Forex Trading No Comments

Price vs. Time-Based Pullback Strategies



Buying pullbacks based strictly on price levels isn’t working at all these days, thanks to HFT domination. We saw a great example on Tuesday, with the SP-500 undercutting natural support near 1150, shaking out deep dip buyers, and then miraculously closing back above support.  The same thing is happening with individual stocks, which are ripping right through support levels that would have held just fine in May or June. But wait a day and, presto chango, the stocks pop back above those broken levels.

This algo-driven stretch in support and resistance requires that traders shift from price-based into time-based pullback strategies, in which tiered buys are entered when the major indices and the broad market hold their lows and then cycle higher (and vice-versa for short entries). It also means holding your nose and buying stocks that have broken support levels, assuming that new support will set into place during the next up cycle.

If you’re a swing trader, I recommend keeping a close watch on the daily 5-3-3 index Stochastics, which do a great job identifying 3 to 5 day price swings. Day traders can shift down to 60-minute charts, using the same Stochastics settings.

Finally, keep on watching the 50-bar and 200-bar EMAs on the 60-minute SP-500 index futures 24-hour session chart. These levels have been absolutely golden, issuing major tell after major tell in the last six weeks.

 

 

 

 

http://www.hardrightedge.com/edge/

Thursday, September 8th, 2011 Alan Farley, Education, ETF, Stock Trading No Comments