Month: May 2011

By David Adams

A search on any of the popular search engines will provide a trader with a plethora of high probability e-mini trading setups. Oddly enough, I was unable to locate any specific article concerning low probability e-mini trading setups. Yet the problem of most e-mini traders is avoiding low probability setups, which are generally unprofitable. Considering the astounding number of new traders who fall victim to low probability e-mini trading, I found it odd that so little has been written on this particular topic.

Obviously, some trading setups are better than others. That is to say that an e-mini trader who regularly takes high probability setups succeeds at a higher rate than in e-mini trader who takes low probability setups. That being said, the rate of failure of first-year e-mini traders is in the 80% to 90% range. Obviously, an awful lot of new traders are taking low probability setups and failing.

Why, then, are we reluctant to talk about low probability trading setups?

In my world, it is very important to be able to identify high probability e-mini trading setups; but it is just as important to be able to identify low probability trading setups. Perhaps e-mini educators are loathe to discuss the negative aspects of trading as it may discourage potential students from entering the business; for whatever reason, I am baffled at the lack of discussion of low probability trading. Obviously, the failure rate for new traders would indicate that an awful lot of traders are taking an awful lot of lousy trades.

I think unproductive trades fall into three particular categories, which are: (in no particular order)

• Trading against the trend
• Trading when there is no trend
• Trading without a solid understanding of support and resistance

One of the most overused clichés and trading is “the trend is your friend.” It is my opinion however, that every new trader should repeat this mantra 25 times every night because it is truly one of the most important keys to successful trading. Yet, I observe traders initiate trades against the trend with such startling regularity that it becomes both frustrating and astounding. I’ve given this concept much thought, and realize that very enticing setups occur against the trend, especially among traders who rely heavily upon indicators and oscillators to select e-mini trading setups. Depending upon which author you care to quote, the market resumes in the direction of the trend at a rate of 70 to 80% of the time following a retracement. Yet traders find themselves in a near constant battle to avoid trading retracements because they often made very enticing setups in oscillator and indicator-based trading. Regardless of the strength of an indicator-based trade set up, if it is against the trend I simply ignore it. Unless you are an extremely experienced countertrend is trader, stay with the trend and profit.

There are many times when the market is in a period of consolidation and confined to an identifiable range. When this consolidation period lasts longer than 8 or 10 bars it often stays in this channel for an extended period of time. Generally speaking, channel based trading is random in nature and very difficult to predict. That being said, the level of trading that occurs in a consolidation channel is surprising. Quite simply, if the price action is trading in a defined range it will tend to stay in that range for surprising periods of time. It is difficult, if not impossible, to effectively trade in these channels as the action can be quite unpredictable and is definitely random in nature. Yet the level of trading that occurs in channels is startling; especially when it is obvious that a pre-established range is apparent in the chances for anything beyond a small gain are unlikely. Yet new traders pound away in these channels with gusto, hoping that they will catch a breakout or breakdown. As a side note, breakouts and breakdowns from prolonged consolidation channels are generally fail, but not before they snare a good number of traders who pour into the false breakout or breakdown with unbridled hope. Simply stated, breakouts and breakdowns from channel based trading are a low probability trade. Granted, at some point one of the breakouts are breakdowns will succeed, but not before numerous failed attempts at breaking out or breaking down fail.

Of all the factors involved in e-mini trading, one of the most important is to have a firm understanding of where her current support and resistance lie. At any given time there may be 4 to 6 support/resistance lines in a trading range. Taking a long trade directly into a point of resistance is similar to running headlong into a brick wall, especially if the line of resistance has been tested several times and held strong. Yet a casual analysis of a daily trading chart will show a sizable number of traders trading directly into support and resistance. Being aware of the exact points of support and resistance is essential knowledge for every trader. On the other hand, it seems obvious to me that many traders are only vaguely aware of support and resistance, else they would not trade headlong into these powerful price action stoppers.

In summary, this short article serves to point out three trading options that are undesirable. No matter how tempting it may seem, it is seldom a good idea to trade against the trend; nor is it wise to trade consolidation patterns. Consolidation patterns, or consolidation channels are usually confined to an identifiable range which precludes any dramatic price movement. Finally, it is essential for every trader to know and understand where support and resistance lie on a trading chart. It is never a good idea to take a trade directly into support or resistance as these lines are often a stopping point for any potential price action. Trade with the trend, avoid trading consolidation channels, and be aware of the location of support/resistance and you will greatly enhance your chances of trading profitably.

About the Author

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By James McKee

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

By Cedric Welsch

The Foreign Exchange market, known as Forex, is an alternative to investing in the traditional stock market. This market deals exclusively with currencies from all over the world. Forex is the largest market in the world, and is one of the most liquid options, since it is dealing directly with money. There are many ways that one can get involved in this unique market. A variety of Forex trading platforms are available to global investors.

Forex trading platforms can often be downloaded directly from a company website. Which one an investor chooses will be based on their needs and personal preferences. These programs may come with certain features that make their use more streamlined. Features may include tutorials to help beginners learn both the program and the exchange system. If one wants additional guidance, they can find a program that comes with links to trading coaches. The software might have scenarios that one can play and manipulate to “practice” before investing their actual cash. Some software comes with automatic transaction choices that one can use based on guidelines that they set for themselves.

Some programs may be limited in that they include trading with only certain currencies. Others may have a minimum in how much money the individual must invest initially. It is important to understand and analyze the pros and cons of the different programs that they are considering. One might want to consider talking to current or past users that are familiar with the different program options. The Internet is a great resource for customers to use for comparison. Many websites are devoted solely to comparing different Forex trading platforms. These can be a quick way to compare features and read reviews from people who have used the platforms.

One might want to consider using a software trading tool along with advice from a “real live” professional. Brokers and other financial experts can help with the Forex market. Some individuals may even be specialists in this area. One should be sure that they trust their financial professional and understand their terms of service. It is a good idea to use someone associated with a reputable company, or someone that has a good community reputation.

Foreign Exchange market trading is an option that may offer a change of pace to traditional investing. This global market offers an array of trading platforms for individual investors to choose from and consider adding to their financial toolbox.

About the Author

To achieve high level currency trading profitability, you need good forex research.
And don’t ignore flipping through forex scam review pages on the web.

Select investors within the United States have grown hungry for a worthwhile investment that will give a return quickly. In this new market Chinese stocks have proven to be a very tempting investment to those who are promised quick returns. Unfortunately many of the Chinese stocks offered in the US have proven to be fraudulent, and as a result many Americans are losing money in stock scams. The chance to strike it big with a small investment has been a tool used by scam artists for hundreds of years, and in an ailing economy it is more effective than ever.

The best scams are those veiled in the possibility of making money legitimately, and those who are not especially well versed in stocks can be taken advantage of. This is why many criminals are now using backdoor methods to dump Chinese stocks onto the US market in an effort to inflate the value, and then dump the stock prior to being caught. Such scams are becoming more and more commonplace as Americans get wind of a prosperous China and want to cash in on it. This feeding frenzy of American desperation has incited many con artists to take up new strategies of coming between investors and their money.

The continued assault upon investors will likely result in more trouble for the USD on the online forex exchange. There has to be a measure of confidence in the marketplace where investors expect a certain measure of honesty where their money is concerned. There is enough risk present in the financial world without there being those who want to rig the system, and such rigging undermines the stability of the US economy and the USD. When there is no confidence or trust in the marketplace there can be a really large decrease in the amount of money invested.

The regulations placed upon the investment market are there to prevent any sinister deceit to be carried out by those who wish to earn money dishonestly. While there will always be risks where investments are concerned they are absolutely necessary to fuel growth in the economy. The honest and level playing field where investment is concerned must be maintained, without this attention to fairness the US economy and the USD will suffer greatly. There has to be more vigilance and an active effort to safeguard investors where scams such as these are involved, otherwise no one will want to invest.

By James McKee

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

By James McKee

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

Bloomberg has a new video series out called “China’s Ghost Cities.” (You can watch the first segment here on YouTube).

The reporter, Adam Johnson, describes how the Chinese government is building massive cities that no one lives in yet. The expectation is that China is going to “grow” into these cities.

A remarkable idea, really. The authoritarian planners in Beijing or wherever decide it would be good if, say, a million people or more could relocate to a pre-planned area.

Then they build out the infrastructure — or rather the entire metropolis, skyscrapers, stoplights and all — and wait.

Stop for a moment and ponder how nutty this is. The last time your editor checked, central planning was not a huge success. According to history, bureaucrats wielding directives over long distances tend to allocate resources poorly.

But are ghost cities a recipe for a bust? Some say no. The Bloomberg reporter, for instance, assures us that China’s economics are different — that is to say, “it’s different this time.” (Where have we heard that before…)

It is supposedly OK that these ghost cities, built for millions of inhabitants, have only tens of thousands of people living in them — because all that deserted square footage will eventually be put to good use.

As a bonus, building ghost cities is great for economic growth.

Via running superhighways out to the middle of nowhere, erecting steel and glass towers in the boondocks, China generates new jobs in construction, civil engineering, city planning and the like. All this construction looks fabulous on paper. The ghostly infrastructure gets counted as productive output, and the super-aggressive GDP target is maintained.

But what is wrong with that picture?

For one, there is the central planning problem. Growth and development are free market forces, with signature markings of trial and error. Successful cities are built from the ground up, not decreed by bureaucrat stamp. So how does the government know where a new metropolis should go, or what its optimal size should be?

Then you have the accounting problems. Should the promise of tomorrow be so readily reflected on balance sheets today?

Imagine if a public corporation said, “We are going to grow 20% per year by building idle factories in the middle of nowhere, that no one is going to use for quite some time. Don’t worry though, the demand for these factories will show up. We’ll make a profit on them eventually. Just don’t ask when.”

Such a plan would be brutalized by the market, because public companies are held accountable for profits and return on investment (ROI). (At least most of the time — in bubble times investors will happily suspend their rational faculties.)

The Chinese government, of course, does not have to seek profit in its actions. Or it can measure results in some entirely non-traditional way, via “how many jobs did we create” or “how do the GDP numbers look.”

At the end of the day, the “ghost city” mandate is directly channeling John Maynard Keynes, who once suggested digging holes, then filling them up again as a way to put men to work.

China is being more sophisticated. Rather than digging holes, it is putting up buildings. The effect is the same though. “Some day” the empty skyscrapers will have value — if they are not condemned as worn-out structures first — but until then they are just holes.

(Don’t forget, you can sign up for Taipan Daily to receive all of my and fellow editor Joseph McBrennan’s investment commentary.)

China bulls are not bothered by the ghost cities for at least three reasons.

First, they have convinced themselves (with more than a bit of faith) that the empty metropoli will one day (sooner rather than later) be full.

Second, they figure China has a lot of money to burn even if the ghost cities don’t work out.

And third, as the old saying goes, “a rolling loan gathers no loss.” As long as the speculative music is playing, the property developers can keep dancing.

The trouble, as always, comes when the music stops. If China turns out to have built, say, 20 years of excess capacity by the time that happens, then hundreds of billions’ worth of stagnant projects will have to be written off.

Tougher still is the idea that China’s “economic miracle” is actually a heavily leveraged bet on mercantilism… propped up by runaway construction… with the tail end of the boom pulled recklessly from pie-in-the-sky projections for future growth.

That is another favorite tactic of investment manias: Along with the embrace of forever skyward growth curves, mortgaging tomorrow (and borrowing against it) for the sake of today.

Even if China can write checks to cover the write-off costs of all those cities, there is a big multiple built in to the global economy right now on the assumption that China growth is the real deal. When it sinks in that much of that growth is actually “ghost” or “phantom” growth — in keeping with these empty monuments to nowhere — the collapse of that multiple could hurt.

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The twentieth trading week of the year comes to a close as investors fret about signs that US consumer demand may be weakening, as well as the Greek debt crisis.

May 20 (Bloomberg) — Axel Merk, president and chief investment officer at Merk Investments LLC, discusses the Greek fiscal crisis, the outlook for the euro and Portugal’s bailout from the International Monetary fund. He speaks with Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Danny Riley’s Mr Top Step – Today’s negative tone was set by headlines that Goldman expects subpoena’s due to the mortgage crisis and Fitch’s gowngrade of Greece. These actions took the SPM from a daily high of 1339.50 to a early morning low of 1328.70 as crude oil went from being up .50 cents in early trading to down $2.50.

It’s not the “bad news” from Europe that has been pushing the euro lower

By Elliott Wave International

From the May 4 top near $1.4950, the EUR/USD (the euro-dollar exchange rate and the most actively-traded forex pair) has fallen as low as $1.4050 on May 16.

In other words, the dollar has gained 9 full cents on the euro in less than two weeks. That’s a huge move, and people want explanations. And what the media offers boils down to “risk aversion,” in light of “the bad news from Greece.” And that sounds good — until you check the timeline.

The latest wave of trouble in Europe started on May 3, when Portugal asked for a bailout. If you think that event is what pushed forex traders towards “risk aversion” — think again. The euro happily gained against the U.S. dollar the following day, May 4, pushing the exchange rate to that high near $1.50.

And if you think the trouble in Greece pushed the EUR/USD lower — again, please reconsider. Greece made a splash in the news on May 9, when its credit rating was downgraded. But by then the EUR/USD had already fallen some 700 pips, to the mid $1.42 range.

So, as good and logical as all the mainstream stories sound about “risk aversion” and “bad news from Europe,” the timing of events doesn’t fit. What then gave the dollar the strength — and at a time when almost everyone expected it to only fall further?

Believe it or not (and it’s easy to believe it, because, as this example shows, there’s no better explanation) the news doesn’t set broad trends in forex. Collective emotions of forex traders do. In early May, the majority was betting against the dollar. When everyone places their bets and there is no new money left to push the price further, it has no choice but to reverse.

That’s why it pays to be extra cautious in the financial markets when everyone takes the same side of a trade. True, markets can stay overbought or oversold for a while, but the reversal inevitably comes — and the stronger the one-sided conviction, the bigger the reversal.

The advantage Elliott wave analysis gives you is this: Wave patterns in forex charts track the collective mindset of the market players. By anticipating the price points where the Elliott wave pattern should end, you get a pretty good idea of where the trend should stop and reverse.
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