june 2009 - your markets monthly
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DESCRIPTIONGeneral magazine cover trading in financial markets, recommendations, technical analysis & trader psychology
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 Chiens 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.
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 youll 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.
Source: eSignal - www.esignal.com
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?
Youll 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).
Source: eSignal - www.esignal.com
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
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:
Indicator NameSimple Moving Average
HowSMA = CP + CP-1 (day) + CP-2 (days) + CP-3 (days) / PWhere CP = closing Price & P=Number of Periods
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.
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
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 youre 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 youd 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 dont have that kind of feeling for what it is youre doing, youll 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 its not the number of brain ce