Month: August 2011

By ForexYard

Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With several European nations on holiday today, liquidity will likely be kept to a minimum, however, helping the EUR stave off intensely deep declines.

Economic News

USD – US Dollar to Rise if Stocks Continue Decline

The US dollar (USD) may be seen trading mildly bullish Monday morning if traders see the global stock market persist in its decline. Although the value of US credit was downgraded, investors have little place else to move their troubled assets outside of US Treasuries. The downturn in the stock market last week has played into the strength of the US economy: its traditional store of value.

Though analysts view the downgrade as overall bearish for the USD, a sharp downturn was held in check by a continued purchase of bonds by European investors. Similar declines and ratings downgrades of several European peripheral nations have made the USD and gold all the more attractive as valued safe-havens.

As for this week, the US economic releases will focus mostly on housing and consumer inflation. Today’s publication of TIC’s Long-Term Purchases report will coincide with a housing index released an hour later at 15:00 GMT. Liquidity will likely be kept more to a minimum in today’s early trading as several European banks close in observance of Assumption Day. French and Italian liquidity will be absent, but Japanese data may offset the lower volatility. Traders will want to pay close attention to today’s American data.

EUR – EUR Mixed as Periphery Struggles with Debt

The euro (EUR) was seen trading with mixed results this morning following pessimistic reports on euro zone debt woes. Against the US dollar (USD) the euro was trading somewhat bearish in early morning hours Monday as the greenback moved upward against all currency rivals. The euro, however, does not appear in a position to capitalize on the gains being seen elsewhere; its structural weaknesses are gouging its value worldwide.

Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment, due to the S&P downgrade, has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, also looks to be losing ground in financial markets as safe haven assets such as the Swiss franc (CHF) and Japanese yen (JPY) make gains; though central bank interventions in Japan may offset the JPY’s gains.

Sentiment across the euro zone has turned negative, with many analysts and economists expecting moves towards safety by traders this week. Any more bearishly-leaning news out of any major global economy will likely pull down on the EUR even further as investors flee risk. With several European nations on holiday today, liquidity will likely be kept to a minimum, helping the EUR stave off intensely deep declines.

JPY – JPY Bullish as Speculators Anticipate BOJ Intervention

The Japanese yen (JPY) was seen trading moderately higher versus most other currencies this morning as its value as an international safe haven continues to push its value bullish. Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.

The latest moves of the JPY are causing some concerns, however, as many speculators are anticipating another round of intervention by the Bank of Japan (BOJ). A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan’s current financial model. Another round of intervention may become more necessary if this morning’s GDP figures show a sluggish economy.

Gold – Gold Price Increasing Monday Morning

The price of Gold found support over the past week amid the plummeting strength of the US dollar, the currency in which such assets are valued. Gold has been trading with rather mild price action since June, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from the euro zone’s periphery and a recent downgrade of US debt by S&P’s ratings agency.

As investors seek safety, the value of gold, which has been seen trading with mixed results, is expected to rise, but a selloff in commodity futures pulled down on precious metals last week. A sudden rise in dollar values due to this week’s uncertain environment is expected to assist the sentiment favoring gold. Should risk sentiment continue to bounce in sporadic directions this week, the price for this precious metal may continue to experience similar swings in value.

Technical News

EUR/USD

Despite the increased volatility the EUR/USD continues to trade in a defined range between 1.4400 and 1.4050. Falling monthly stochastics suggest any approaches to the 1.4400-1.4500 levels may be sold into. Initial resistance comes in at last week’s high of 1.4400 followed by the falling resistance line from the May high at 1.4450. A close above 1.4700 would signal an end to the range trading environment. To the downside support is found at 1.4050 followed by the 200-day moving average at 1.3945 and the rising trend line from June 2010 at 1.3875.

GBP/USD

Last week’s declines found support near the previously broken trend line from the April high and the pair looks to move higher. Resistance comes in at 1.6475 a level sterling has failed to breach three times. A move above here and the technical picture would likely turn bullish with further resistance at 1.6550 and 1.6745. The 200-day moving average at 1.6090 could keep any declines in check with further support at 1.6000 and 1.5935.

USD/JPY

The yen has made two attempts to break through the all-time low that was set in mid-March near 76.25. Rising stochastics on the daily and weekly charts point to potential gains in the pair but short term momentum studies look to have more room to fall before the pressure is relieved. Therefore, a break of 76.25 is favored. After this level there is a lack of support on the monthly chart. To the upside initial resistance is found at last week’s high of 78.50 followed by the post intervention high of 80.20.

USD/CHF

In an amazing run the USD/CHF has gone from a complete free-fall to trade above its 20-day moving average, a level the pair has not seen since early July. After gapping above its initial resistance at 0.7800 the pair could run into resistance at 0.8080 which is also near the 38% retracement from the February high, followed by the trend line that falls off of the February high at 0.8200. This may provide traders better reentry levels into the long term downtrend of the pair. A further resistance level is found out at 0.8550.

The Wild Card

EUR/CHF

By far the best performer and most volatile over the past five days the Swiss franc continues to unravel following threats from the SNB to peg the value of the franc to the euro, though the chances of this occurring are slim as this would require capital controls and intervention by the SNB to maintain the exchange rate. Thus a renewed flair up in euro zone tensions and forex traders could look to enter once again into the long term downtrend of the EUR/CHF at better levels. The EUR/CHF is approaching a 61% retracement from the July 4th high at 1.1470. A break here and the pair will likely test its long-term downtrend from the April high at 1.1900.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By Jon Jacoba

Every time somebody makes a credit card purchase in a foreign country, when a firm pays it’s outsource provider in another country or a ticket in US$ and purchases it with a EUR-based credit, one or more forex transactions occur. In a few words the Foreign Exchange market is the virtual place where currencies are bought, sold and their prices set.

In an increasingly global world, where annual goods trade for developed countries (not counting services) is in the 1,000 Billion range, naturally Forex market commands among the largest over the counter financial markets.

Do people make money in Currency Trading? This is one question that many of us have been asking ourselves recently. Here is one of the largest forex hauls in history. In 1992 the British Pound exchange rate versus other European currencies was fixed by the bank of England. In order to maintain that value, the Bank fixed their interest rate pretty high, similar to the one offered by Germany. However Germany’s high interest rates were appropriate for a robust economy in need for a cool down to prevent a spike in inflation. Englands economy on the other had was in trouble. A Hungarian immigrant identified this situation, figured out that it was unsustainable and sold short 10 billion pounds. He made 1.1 Billion US$. His name is George Soros.

These are not one off incidents and have repeated itself over time. The newspapers is full of events of currencies overvalued being brought back to its true value; in the recent European crisis forex players brought the value of the Euro down when it was overvalued (from 1.3654 on April 14 2010 to 1.1925 on June 8, 2010, – 12.7%) and back up again when it was oversold (from 1.1925 on June 8, 2010 to 1.3276 on August 6, 2010, + 11.3%). Central bank interference to reach a desired value have not stopped either, as the late interventions of the central bank of Japan and the central bank of China illustrate.

Calculating currency movements is not a matter of chance alone. Disciplines and strategies such as technical analysis help to understand short terms fluctuations of a currency, where as universal indices, like the Big Mac Index, enable to spot currencies that are away from their intrinsic value and that will converge to that price within a reasonable period of time.

About the Author

Searching for reliable forex trade help on the web? At Forexbud.com you will find forex trading strategies that would give you and opportunity to make profitable trading decisions.

EUR/USD

Despite the increased volatility the EUR/USD continues to trade in a defined range between 1.4400 and 1.4050. Falling monthly stochastics suggest any approaches to the 1.4400-1.4500 levels may be sold into. Initial resistance comes in at last week’s high of 1.4400 followed by the falling resistance line from the May high at 1.4450. A close above 1.4700 would signal an end to the range trading environment. To the downside support is found at 1.4050 followed by the 200-day moving average at 1.3945 and the rising trend line from June 2010 at 1.3875.

GBP/USD

Last week’s declines found support near the previously broken trend line from the April high and the pair looks to move higher. Resistance comes in at 1.6475 a level sterling has failed to breach three times. A move above here and the technical picture would likely turn bullish with further resistance at 1.6550 and 1.6745. The 200-day moving average at 1.6090 could keep any declines in check with further support at 1.6000 and 1.5935.

USD/JPY

The yen has made two attempts to break through the all-time low that was set in mid-March near 76.25. Rising stochastics on the daily and weekly charts point to potential gains in the pair but short term momentum studies look to have more room to fall before the pressure is relieved. Therefore, a break of 76.25 is favored. After this level there is a lack of support on the monthly chart. To the upside initial resistance is found at last week’s high of 78.50 followed by the post intervention high of 80.20.

USD/CHF

In an amazing run the USD/CHF has gone from a complete free-fall to trade above its 20-day moving average, a level the pair has not seen since early July. After gapping above its initial resistance at 0.7800 the pair could run into resistance at 0.8080 which is also near the 38% retracement from the February high, followed by the trend line that falls off of the February high at 0.8200. This may provide traders better reentry levels into the long term downtrend of the pair. A further resistance level is found out at 0.8550.

Read more forex trading news on our forex blog.

Article by Harjeet

Indian Industrial Sector:
The industrial sector of India is responsible for 28% of the country’s GDP and generates employment opportunities for about 14% of the overall working population. The country has witnessed immense growth in this sector since the 1990s, the period known as the post liberalization era. The major changes in the industrial segment were introduced by the Narasimha Rao Government. The period saw the end of the License Raj, tariffs and interest rates were reduced as well as in many divisions foreign direct investments were automatically allowed, while it comes to investing in India.

Industries in India:

Fast Moving Consumer Goods (FMCG) Industry in India:
The FMCG division is one of the most promising industrial sectors of the Indian market. It is ranked among the top five industrial sectors of the country. The major market players in this segment are namely Hindustan Unilever, Godrej, Colgate-Palmolive, ITC, Procter and Gamble, L’Oreal etc.

Wireless Communication Industry in India:
Wireless Communication Industry in the country is emerging as one of the major sectors. Essar Group, Nokia, Beetle, British Physical Laboratories (BPL), Telepoint Services India Pvt. Ltd are some of the wireless device making companies operating in India. BSNL, MTNL, Tata Communications, Reliance, Idea Cellular etc are some of the service providers in the wireless segment in India.

Cottage Industry in India:
The Cottage Industry or otherwise known as the Small Scale Industries have been the backbone of the rural Indian economy. Khadi, leather, silk, cotton, wool, jewlry, ornaments, gems and many other items are produced by these industries. The biggest plus point is these cottage industries in India generate huge employment potential as they require ample manpower.

Indian Software Industry:
Since the last two decades, India has witnessed a booming growth in this sector. India is gradually becoming the hub in this field. Bangalore the capital city of the southern Indian state Karnataka is known as the Silicon Valley of India.

Indian Biotechnology Industry:
This sector has posted impressive growth over the last few years. BioPharma, BioAgriculture, Bioinformatics, etc are some of the subdivisions of the Indian Biotechnology Industry. Biocon is the country’s first Biotechnology Company set up in 1978 in Bangalore, Karnataka.

Indian retail industry:

Setting up of stores of international renowned brands, super markets, shopping malls, departmental stores etc changed the outlook of the Indian retail industry. Some of the major players in the Indian retail arena are Big Bazaar, Pantaloons, Bata, Barista, Cafe Coffee Day, Khadims, and Landmark etc. The retail division is expected to generate more than 10-15 million jobs in the next few years.

Foreign Direct Investment in India:
India has come out as one of the top destinations when it comes to industrial investment. The due credit is given to its liberalized economic policies where FDI up to 100% is allowed in many industrial sectors of the country. The Government has also initiated several measures to facilitate industrial licensing and thus make investing in India easier.

The liberal FDI policies and friendly industrial licensing measures formulated by the Government have made India as a major destination for setting up industries in as many sectors as possible. All thanks to the Government of India which has made investing in India as an attractive option and thus strengthen its economy with such steps.

About the Author

Harjeet is an Indian – born mass-market novelist, who covers the world internet related topics . He writes columns and articles for various websites and internet journals in the domain of Investing in India and Investment options.

By Jon Jacoba

The majority of trading markets are made from men. This is easily comprehensible since market most times are thought like an emotion supplier for all of these men that aren’t once lived in a regulated society. it’s the women who have a better chance at the stocks markets and numbers prove that. If a lady does go to the market, she almost certainly isn’t looking for a roller coaster of emotions and dangerous methods; she is probably concerned about her money, just how you should be.

more and more women are taking work-from-home coaching courses with startlingly great results. It appears that the female psyche is more fitted to the patience and discipline needed to benefit from the newest revenues phenomenon to hit the outskirts in a while.

It won’t sound common sense, but many traders go to the market hunting for an escape route from their dull lives. Nobody can succeed like that. Nobody can succeed when they’re already beginning with the incorrect foot. The exchange is not meant to please or to boost your life; the currency exchange market is created for financiers and traders that are prepared to profit from it. Emotionless. The more that you bring from your life to the chair when going for trades, the likelier you will not succeed in becoming a wealthy trader.

When ambitious on turning into a lucrative trader, you need to realize you will need a full life balance in order. Your mental awareness and state will directly impact on your capability to trade. If you’re consistently worrying about how you’ll pay your debts at the end of the month, these emotions will generally pass onto your trades without you even realizing it. That also happens to folks who try and trade in the market for the sake of fun. This can’t and it will not work.

that is the reason why ladies succeed the most in the stock market: they don’t chase emotions on it. Girls really invest, opposite to many men that are really proud on taking risks and making gigantic gambles. Turning into a lucrative investor is all about minimizing the risks as much as possible and developing a total disregard for money when trading. You must act kind of like a robot when facing that frightening blinking screen; if you don’t, you most likely won’t last long enough to tell the story. This is a forex trading system that works.

About the Author

In a world that is increasingly commercialized, women are making their mark in all industries and forex trading is no exception. Their disciple has give them a forex trading system that is superior to their male counter parts. Learn more about forex trading simplified at forexbite.com

USDJPY moved sideways in a narrow range between 76.29 and 77.19. Key resistance is at 77.19, a break above this level will indicate that a cycle bottom has been formed at 76.30 on 4-hour chart, and the fall from 80.23 has completed, then further rally could be seen to 79.00-79.50 area. On the downside, a breakdown below 76.29 support will indicate that the long term downtrend has resumed, then next target would be at 73.00 area.

Forex Signals

by Shae Smith

‘The Fed said economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.” This is the first time since the introduction of the “extended period” language in March 2009 that the Fed has assigned a specific time frame to it.’ – Bloomberg News

Mid-2013… That’s two years from now! And five years after the Fed began printing money and lowering interest rates.

But, that’s not all Bloomberg has to say on the matter.

Bloomberg’s Caroline Baum wrote, ‘Some economists suspect that yesterday’s verbal gymnastics are a prelude to some form of renewed action on the part of the Fed’.

There’s a good chance the Fed is just warming up the markets for QE3. After the dismal failure of QE1 and QE2, surely third time’s a charm. Right?

So, what’s an investor to do? Watch as central bankers let inflation take over the markets? Or do you ‘wait and see’ what happens before you feel it’s ‘safe’ to jump back in?

The endless talk about a bear market would send the toughest investor into the cave.

And in the medium term, things aren’t going to get much better.

This isn’t the bull market of five years ago.

You’ve heard before that this is a ‘post-credit-crisis environment’. But how do you invest in this market?

Sure, we all know about the credit problems. And the week’s action in the market has proved the crisis hasn’t gone.

All those printed dollars pumped into the economy have just left bigger problems.

And Bloomberg’s Baum admits that ‘Today’s economy… appear[s] to be drug resistant’.

The drug of choice has been ‘printing’ the problems away.

But the central bankers could turn the money printing gizmo to full speed and the problem would still be here.

As an investor, what can you do?

Don’t get out of the market – change how you invest

Don’t let the printing presses stop you from investing.

It’s not the time to get out of the market.

It’s just time to change your approach.

Editor of Australian Wealth Gameplan, Dan Denning has prepared his readers for this market sell-off. In a recent Australian Wealth Gameplan weekly update he wrote:

‘Believe it or not, I think the coming years will be much better for investors… The days of front-running the Fed and boosting returns with margin accounts will be over.’

Change is happening in the economy. And how companies spend their cash will be different in the future.

He points out:

‘In an economy with double-digit credit growth, spending power equals income plus debt. Even with incomes growing weakly in the last 20 years, huge debt growth equated to huge spending power. This translated into outsized corporate earnings and higher stock prices.’

Simply put, companies that lived beyond their means in the past won’t be able to do that in the future.

Dan adds:

‘In a low-growth, deleveraging economy, spending power equals income minus debt repayment.’

Low debt companies to add to your watch list

This is the key to Dan’s investing strategy.

Companies with low or no debt are on his watch list.

And because of the lack of access to credit, companies will have lower profits.

They’ll have to be smarter with how they spend their cash. Unlike past years, companies won’t be able to rely on debt for growth.

That could mean lower capital gains for investors. But from now on you’re more likely to invest in companies with sound businesses rather than those that have borrowed billions to quickly expand.

But it will take some time. And investors will have to adjust to this ‘new normal’.

This doesn’t mean you can’t profit!

It’s just changing how you look at companies.

Consider this. Based on market capitalisation, five out of the 10 biggest companies on the Australian market are, wait for it… financial firms! That shows you the impact of credit growth.

Dan has repeatedly told his subscribers that ‘global credit growth is in a long-term downtrend’. Which just convinces Dan further that any company relying on credit expansion will suffer.

And this is where his formula for ‘business and investment success in a deleveraging world’ becomes your future investment tool.

Speculation buys have gone out of the window.

The market has changed. Credit-driven growth belongs to yesterday.

As the market moves on, you need to change your investing style.

To find out the strategy Dan is recommending to his Australian Wealth Gameplan subscribers, click here…

Regards,

Shae Smith.
Assistant Editor, Money Morning

Source: Investing In A Post-Credit World

By CountingPips.com

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators continued to decrease their long positions for the euro against the US dollar last week to an overall net short position for the first time since January 11th. Non-commercial futures positions, those taken by hedge funds and large speculators, trimmed their positions of all the major currencies against the US dollar as bets for the Japanese yen, Swiss franc, Canadian dollar, New Zealand dollar, euro, British pound sterling, Australian dollar and the Mexican peso all declined, according to data on August 2nd.

Some of this week’s notable changes were Swiss franc positions falling to the lowest level in over a year while Australian dollar positions plummeted to their lowest level since November 2010.

EuroFX: Currency speculators decreased their futures positions for the euro against the U.S. dollar for a  second consecutive week to a overall net short position. Euro positions fell as of August 9th to a total of 8,273 net short contracts from the previous week’s total of 1,753 net long contracts on August 2nd. Euro positions are at their lowest point since January 11th when net contracts were on the short side at -45,182

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: British pound sterling positions decreased for the first time in five weeks to a total of 245 net long positions as of August 9th. British pound contracts had risen for four straight weeks to a net long total of 5,139 contracts on August 2nd.

JPY: The Japanese yen net contracts fell after gaining for five straight weeks. Yen net long positions decreased to a total of 42,149 net long contracts reported on August 9th following a total of 58,833  net long contracts reported on August 2nd. Yen positions were at the highest position in over a year on August 2nd.

CHF: Swiss franc long positions fell to the lowest level all year as speculators decreased bets on Swiss currency futures. Franc positions declined to a total of 4,655 net long contracts as of August 9th following a net total of 12,341  long contracts on August 2nd.

CAD: The Canadian dollar positions declined sharply after rising for five consecutive weeks. CAD net contracts fell to a total of 23,704 contracts as of August 9th following an advance to a total of 41,037 net long contracts on August 2nd.

AUD: The Australian dollar long positions declined sharply as of August 9th. AUD futures positions fell for a second straight week to a total net amount of 29,016 long contracts as of August 9th following a total of 75,598 net long contracts reported as of August 2nd. This is the lowest level for Australian dollar speculative positions since November 2010.

NZD: New Zealand dollar futures positions fell from their highest level in over a year to a total of 20,427 net long positions as of August 9th. NZD contracts had increased for five straight weeks to a total of 24,126 net long positions as of August 2nd.

MXN: Mexican peso long contracts fell sharply lower as of August 9th. Peso positions declined to a total of 41,293 net long speculative positions as of August 9th following a total of 88,484 contracts that were reported as of August 2nd.

COT Data Summary as of August 9, 2011
Large Speculators Net Positions vs. the US Dollar

EUR: -8,273
GBP: +245
JPY: +42,149
CHF: +4,655
CAD: +23,704
AUD: +29,016
NZD: +20,427
MXN: +41,293

The USDCHF has been an excellent currency for trend traders in modern times.  Uncomplicated trades at resistance points have allowed for many opportunities to catch long term trend following positions.  We have identified potential Swiss Franc longs on several occasions when citing our “currency correlation relative strength” method.
I believe strongly in trading with the trend but as a price-action trader my focus is drawn towards a bullish weekly hammer candle like this one.  The volatility that is captured within this USD/CHF candle and the fact that the bulk of the candle is formed of the lower wick) make it an outstanding example.  This candle has also formed following an established down-trend which is the ideal place to find them.

Looking at the negatives.  This has to be considered as a counter-trend signal. There is also no previous support level to cite as USD/CHF has been coming into record lows for quite some time now.  Longer time-frame positions can also be very demanding on the management front if the trader is not good at leaving the trade to run its course; these weekly candles can take quite some time to reach the targets – if at all.

All the same -this candle is the first bullish reversal signal on Swissie for a long time and therefore it is worthy of my attention.
Do not take this as a recommendation to trade.  Two traders could easily take a long position on this and one could profit while the other one takes a full loss.  If you have an interest in price action analysis it is worth spending time learning how to trade on demo before using any real funds.

Success to you.
forex-fx-4x

Swiss Franc Technical Reversal Signal

The USDCHF has been an excellent currency for trend traders in modern times.  Uncomplicated trades at resistance points have allowed for many opportunities to catch long term trend following positions.

We have identified potential Swiss Franc longs on several occasions when citing our “currency correlation relative strength” method at forex-fx-4x. I believe strongly in trading with the trend but as a price-action trader my focus is drawn towards a bullish weekly hammer candle like this one.  The volatility that is captured within this USD/CHF candle and the fact that the bulk of the candle is formed of the lower wick make it an outstanding example.  This candle has also formed following an established down-trend which is the ideal place to find them.

Looking at the negatives.  This has to be considered as a counter-trend signal. There is also no previous support level to cite as USD/CHF has been coming into record lows for quite some time now, see this Swiss Franc forex news for an example.  Longer time-frame positions can also be very demanding on the management front if the trader is not good at leaving the trade to run its course; these weekly candles can take quite some time to reach the targets – if at all.

All the same – this candle is the first bullish reversal signal on Swissie for a long time and therefore it is worthy of my attention.

As ever, do not take this as a recommendation to trade.  Two traders could easily take a long position on this and one could profit while the other one takes a full loss.  If you have an interest in price action analysis it is worth spending time learning how to trade on demo before using any real funds.

Success to you.

forex-fx-4x

The author can be found writing on this forex trading blog amongst other sites.

By David Adams

For aspiring e-mini traders, the contract of choice always seems to be the ES contract. I don’t understand that reasoning because the ES is among the most difficult of contracts to trade profitably. There are many reasons for this, which we will talk about later in the article, but the obsession with the ES, and the inevitable results, make it an unsatisfactory contract for new traders to start their trading careers.

I think I know why most new traders are drawn like moths to a light source when it comes to the ES contract. For example:

• The ES is the largest contract in the e-mini series
• The ES has a tremendous level of liquidity compared to other e-mini contracts
• The ES has a certain level of prestige each among e-mini traders
• Many trading educators teach the ES contract as the gold standard of e-mini trading

To my way of thinking though, these are all reasons not to trade the ES contract. The ES contract tends to be dominated by large traders and an undetermined level of automated trading. While the effect of automated trading is difficult to ascertain, there can be no doubt that the ES makes some unusual moves and, compared to times past, does not trend in the manner it once trended. There is a high level of retracement in each bar and inexplicable changes in direction are common.

It is not uncommon for me to have students come to me for help after they have been trading the ES for help. After a bit of training, and moving them to the YM contract, they begin to see positive results in their trading. Of course, there are those who would claim that the YM does not have the liquidity of the ES. That’s true. However, for e-mini traders trading less than 10 contracts I have never seen noticeable slippage on the YM contract. Granted, if you want to trade 100 contracts the YM is not the contract for you. But most traders, especially retail traders, trade less than 10 contracts and they can avoid the vast majority of the pitfalls encountered on the ES contract by simply trading the YM contract.

I do not mean to infer that the YM contract spits out money like an ATM machine. There can be times when the YM is difficult to trade, and you have to stick to your trading plan and methodology. On the other hand, it’s important to understand that the extraneous variables on the ES are not present on the YM. Additionally, one tick equals five dollars, so the learning curve is a far more gentle experience than the higher tick value on the ES contract.

In summary, I have pointed out the downside in trading the ES contract, especially for new e-mini traders. I have questioned why so many trading educators tend to start their new students on the ES contract, when contracts that are more conducive to learning are available. For me, the YM contract is the perfect contract to start short e-mini trading experience.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here