june 2009 - your markets monthly

In this edition:

• Market Recap: As at 26 June by William Chien - Last month William was spot on!

• Spread Trading – An Overview continued... - Guest Contributor: Guy Bower

• Technical Indicator of the Month: - Simple Moving Average

• Find The Right Fit - (adapted from ‘Bullseye - Top Trader Thinking’ by Matt & Sari)

• Recommendation Program update - William Chien’s CFDs - Commodities Basket Recommendations - PCD Advisory - Seasonal Spread Trading

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June 2009Volume 1, Edition 7

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For those of you who followed my charts from the last edition of 'Your Markets Monthly' you will remember the following chart and projection:

The Month So Far… As at 26-June-09By William Chien

I have now included the XJO chart as at 26 June 2009. As you can see, the XJO index has followed the path I identified and I now expect the XJO to resume the next wave as per my original forecast. Please also note my newly projected "significant price and time window" outlined in the updated XJO chart below.

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Last month I also made the following projection on spot gold, indicating there would be a fall followed by a rally. Please see below:

As you can see on the newly updated spot gold chart below, subsequent to my original forecast on 26-05-09, spot gold climbed 5 more trading sessions and has since fallen almost 7%. Pay attention to the green vertical line in the chart below as an indication of when I expect a potential change in trend.

recommendations tailored to suit you & your accountMy clients are doing well in this environment - contact me now to discuss how I can assist you.

Gold

Equity spreads

SPREAD TRADING – AN OVERVIEW by Guy Bower

Source: eSignal - www.esignal.com

Spreads are calculated by taking one price away from another. For most spreads, this is the logical way to do it – as well as the way brokers will accept orders. What if however, you were looking to trade two related markets that have different contract sizes? In this case, taking one price away from the other does not make sense.

This is where you can calculate an equity spread. This calculation takes contract size into account. Consider gold versus silver. This is an actively traded spread market, but the COMEX futures contracts are based on different amounts of the underlying metal.

Gold is based on a 100 ounce contract whereas silver is based on a 5000 ounce contract. Calculating the equity spread will effectively give you a dollar value of the spread, or as it is called the “equity spread”.

The equity calculation is: (100 x gold price) – (5000 x silver price)Based on prices as at 31 July 2007, the current equity spread for the December contract is:(100 x 687.10) – (5000 x 13.12) = +$2210

For my eSignal screen, I simply type this formula in to have the equity spread displayed.

Continued from our May edition of Your Markets Monthly…

There are only a few markets in which you’ll see equity spreads. Some of these are: Gold versus Silver, NYMEX energy spreads, CBOT soybean oil versus other grains and some CME FX cross rate spreads.


Compare this to a Soybean spread chart. The next chart shows August versus March Soybeans. Over the same period in which Soybeans rallied almost 200pts, the spread had a range of about 25 cents.

Spreads: more risk, less risk?

You’ll often hear people talk about the reduced risk of spread trading. In the majority of cases this is very true – spreads can have less risk than outright futures positions.

This does actually make sense. A spread between two calendar months in the same market will in most cases be significantly lower in volatility than that of the underlying market.

A case in point is Soybeans. The first chart below shows August 2007 Soybeans over quite an active period. From April to July, the market rallied almost 200 cents then retraced about half of that in 3 months. One Soybean contract is worth $US50 per cent quoted, so a 200 cent move is a massive $US10,000 per contract.

This example is typical of many spreads, but it less applicable to inter-market spreads (spreading one market versus another).


Larry Williams

Tom Scollon

Daryl Guppy

The approach one can take as a spread trader is varied. Some spread traders will focus on interest rate markets and effectively trade interest rate expectations. Others will base trades on technical analysis, or company takeover activity. Just like any style of trading out there, there are spread traders that will have different ideas, views and theories.

How to trade spreads

Opening, closing and intraday prices

Contributor information:

Options: A Complete Guide and Hedging: Simple Strategies .

Generally speaking, spread traders are more active during the opening and closing minutes of the trading session. This is because many spread traders take a longer term view.

For us the closing spread price – or at least the prices seen in the closing minutes are the most important.

Guy Bower is professional futures, options and spread trader. Guy is the author of two books:

Guy Bower

Catherine Davey

Sari Mustonen-Kirk

Indicator NameSimple Moving Average

AbbreviationSMA

What

HowSMA = CP + CP-1 (day) + CP-2 (days) + CP-3 (days) … / PWhere CP = closing Price & P=Number of Periods

When

Technical Indicator of the MonthBy: Jason Achjian

When calculating successive values, a new value comes into the sum and an old one drops out.

A simple moving average is the unweighted mean of the previous number of data points. For example, a 10 day simple moving average of closing prices is the mean of the previous 10 days closing prices. Moving averages display a smoothed out line of the overall trend. The longer the term of the moving average, the smoother the line will be.

There are various popular values for SMA, like 10 days, 50 days, or 200 days. The period selected depends on the kind of movement one is concentrating on, such as short, intermediate, or long term. In any case moving average levels are interpreted as support in a rising market, or resistance in a falling market. When using 2 SMAs with different values a smaller value SMA crossing a larger value SMA may be seen as an indication that the price will move in the direction of the smaller value SMA. Accordingly, should the smaller value SMA cross back above the larger value SMA, this may be viewed as a possible change in the trend.

[email protected]

Email:

The default fields that appear can be adjusted at this point for this indicator; you can also adjust them later if you wish. You can also adjust colour and the weight of the line:

To open a eBridge Trader account or get further information on adding technical indicators to charts using eBridge Trader please contact Jason Achjian by

[email protected]

How to add this to your Charts in eBridge Trader

Whilst in your workspace viewing a chart, click this symbol at the top of the chart, then >>> Moving Averages >>> Moving Average:

Click OK once you’re satisfied with the settings (These can be adjusted later also). You will now see the Moving Average added to your chart. You can later adjust settings by clicking the ‘MA#’ at the top left of the chart and then clicking on ‘Properties’, you can also delete the indicator from this menu If there is any feature of eBridge Trader that you’d like covered in next months news letter please email your request to:

THE IMPORTANCE OF ‘FIT’(adapted from ‘Bullseye’ by Matt & Sari)

“You have to find something that you love enough to be able to take risks, jump over the hurdles and break through brick walls that are always going to be placed in front of you. If you don’t have that kind of feeling for what it is you’re doing, you’ll stop at the first giant hurdle.” George Lucas – Film Director

Generally speaking, someone who appears gifted has a brain with the ability to process information ‘better’ relative to the task than others can. It is commonly known that it’s not the number of brain cells that determines our competence, conversely intelligence and indeed the ‘usefulness’ of our brains, is contained in the number of connections that are made between cells and how rapidly information is able to be processed along these connections.

Traders got excited about neural trading networks in the early 1990s partly for a similar reason; the premise being that if you could replicate the human brains ability to create neural pathways and adapt to new information accordingly, creating new pathways better serving future decisions, then you would have a computerised higher level ‘human brain’ minus the emotion! Sounds a bit disturbing at a deeper level, computers ‘thinking’ for humans. The theory however, has been more successful than the results to date.

If usefulness of the brain is determined by the number of connections it can make, then it follows that we can literally expand the capacity of the brain through use. Researchers are questioning the validity of whether our brainpower does decline with age, and are concluding that the real factor affecting the strength of our brain is the same as with any other muscle – exercise! You may be wondering why we’re including information on the brain in a trading book. The two are inseparable. The markets and instruments are your vehicles but ultimately you must take the wheel. We hope to better prepare you to take for that task.

We all have varying degrees of a kind of unconscious competence, whereby we can do many things and execute multiple tasks without thinking about how we do it. The common example is driving a car. Most people do this almost on virtual autopilot—blinkers, brakes, wipers you don’t have to ‘think’.

What about the case of a racing car driver? Driving at breakneck speeds, around slippery corners, with other cars constantly bearing down on you. We marvel at how anyone could do it without careering into more obstacles. These highly talented drivers have simply increased the amount of unconscious competence in one particular area through repetition and rehearsal. Whether or not those who gain mastery know they are following a structured approach (which most often than not they do) they are inevitably doing so, even if it is at an unconscious level.

The ability to ‘feel’ the right actions to take is built into us at an organic level. Just as ants know to leave a pheromone trail from food to nest and back, so we lay ‘trails’ in our unconscious recording all the appropriate actions to take ‘automatically’ next time. By strengthening these through rehearsal and repetition we can create clear pathways to trigger the right behaviours to take, regardless of the circumstances.

Sari:

Andrew L:

Guy B:

Which brings us to the role of a mentor or a coach? Given we all see and do things through our own unique filter, we can employ a model in an attempt to adopt previously tested ‘filters’ relative to trading and adapt them for our own. Modelling via a mentor works partly because of the way our brains work. Every time you exercise your mind in a particular way, real electrochemical events occur in your brain. While you think your actual physical neural networks change.

The landscape of the brain—our grey matter—is permanently altered both in form and chemical composition. Once you’ve mentally created a yellow rubber duckie in your mind—or a ‘head and shoulders’ chart formation for that matter—it is forever ingrained on your mental topography.

The image may vary slightly on each recall but it is embedded there in the neural networks of your brain. The challenge is then to strengthen your ability to produce accurate recollections of the information you have decided to store.

Bullseye puts forward the premise that ‘role modelling’ is a proven way to fast-track successful results. Yet, given we are unique and individual in our make-up, we ultimately need to find our ‘own way’ in order to create sustainable success. Do you agree or disagree with this statement? Why?

Larry W: Totally disagree. Show me one successful man that modelled another? Success comes from drive and desire, not from trying to act like someone else. Did Johnny Cash model some other singer, or the Beatles or Bach?I rest my case. Modelling or mentoring has become in many cases a hustle by people who can’t trade to teach others to do that which they themselves cannot do.

When you chose a mentor on whom to model yourself, you are actually attempting to uncover the ‘links’ they’ve created in their minds, and create similar ones in yours. You seek to understand the triggers that are invisibly ‘felt’ by a successful trader, based on the various information inputs at any given moment, that produce the appropriate actions. With repetition and reinforcement you really begin to leverage this amazing potential to improve your trading and investing activities.

Which is it going to be then? Will you arm yourself with a powerfully functioning brain to give yourself the best chance at success or will you remain in that 90% of the populace who accept the status quo? You’ve probably already exercised your brain this way countless times in the past to reward you with the successes you’ve already enjoyed so what have you got to lose by trying it in a structured fashion to become the best trader/investor you can? It is within your control as to which neural pathways you build as a trader, which is why it’s so important to develop the ability to filter out other traders chatter. While watching television one night, Marcia Hines’ gave some advice to a group of young hopeful entertainers – “Never let another performers nervous energy attach itself to you. Remain in your ‘self’.” Appropriate advice for traders too.

Yes, but as I said before don’t try to be someone you aren’t.

I think role modelling is very much a good idea. In a way we all do it whether we realise it or not. We all learn and are influenced from what others are doing or have done.

Catherine D:

Tom S:

Daryl G:

So our panel had mixed ideas on the value of coaching or mentoring, which makes sense given the subject at hand – FIT. It really is a case of horses for courses.

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Andrew P:

HAVEN’T GOT A COPY OF ‘BULLSEYE – TOP TRADER THINKING’ YET…?

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Role modelling is a starting point. Education is a process. Imitation is not the objective.

My experience is that successful traders have a canny sense of value. They do not come up through the universities. Role modelling may assist, but one needs that inner quality. Everyone can improve, and it is simpler than commonly believed, that is why I wrote my book ‘Fair Share’ - I wanted to demystify the topic for the average person.

I think many of the experiences of being a trader are common to all traders and being able to talk through them with another more experienced trader is great. I think a role model is a very good idea but they are hard to find. Also I have met good traders who I couldn’t relate to at all. For me the next best thing was a trading coach.

Generally, I agree with the premise. No two traders will ever be quite the same. We each have a different risk threshold, a different approach to investments and a unique make up when it comes to investing capital. I’ve probably read hundreds of books by different traders and investors and they each tell you something different, but what you can do is take something away from each of them and make it your own. I also like the fact that as you become more experienced you can adapt your trading style accordingly.

Click the link below for info about ‘Bullseye – Top Trader Thinking’ and to buy your copy.

Matt Kirk

Jason Achjian















William Chien

Philip Dooley

[email protected]

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About Us –

Look out for it late July 2009!

Matt discusses ‘The Right Education’.

Your Markets Monthly…In edition #8 of Top Trader Thinking

- Home Trader

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[email protected]

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june 2009 - your markets monthly

Documents

month william

free trading webinars

free member

updated xjo chart

following chart

updated spot gold chart

free evaluation

trading sessions