We are now getting this much talked about, long over due correction.
After yesterday’s drop, most traders are thinking that they would love to be short Europe. Frankly, I was short last week, but figured the Greece debt crisis was resolved and so I missed this week’s moves. I used EPV, the ProShares leveraged ETF that is short the European MSCI. This is a 2X leveraged fund that is lightly traded, so I urge anyone interested to use caution. As you can see, the weekly chart has formed a classic 1,2,3 Bottom, and a 50% retracement of the move puts the rough target around 32. On the daily, we are ST/OB and price is hitting the declining 200 SMA. Typically, price will meet resistance here, and drift back to the rising MAs, which indicate value. So, keep an eye on it, and look for a decent entry. Europe’s debt crisis is going to be around for awhile, and it will offer many chances to trade EPV.
This is a follow up post to …
The Goal of Winning vs the Goal of Not Losing – by Vladimir P
If one cannot embrace or believe in a particular approach they will not trade/invest well consistently over time. If one is not willing to lose and has no tolerance for risk, they will not win.Most traders will begin doubting after 3 losing trades in a row and look for something new and different. Trading is a game of probabilities and money management. Many search for the method that allows them not to lose. Many traders come into this game with unrealistic expectations.Aaron W did have a 19.64% gain from May 4th to June 22nd with a win rate of 62.5%. Most traders would settle for this type of return if it can be duplicated with consistency and over time.Not to take away from Aaron’s trades but this achievement has been duplicated many times in Spike. We have several Spikers and Spike Members that have demonstrated these types of results each and every quarter. We have seen results of 40% gains in weeks. To my knowledge all achieved with various types of technical analysis. We have all the records since SpikeTrade’s inception and keep great records, which happens to be a trait of a successful trader/investor. We see on average 5 – 7 traders doing 20% or better in a 3 month period. The key is having an ability to minimize your losses when you experience the draw-down periods and this is where most lose the game.Dr. Elder talks extensively about the 3 M’s.Regardless of what Method one chooses to use, it is the last M of importance.
- Mind
- Money
- Method
If number 1 or 2 is lacking it will not matter what Method you use. When one begins to experience loss the mind is affected and the mind controls the decisions we make with our money. It is all interconnected and creates action and re-action. No matter how much information we may think we have, we can never have certainty of the reaction the masses may take. It is certainty that many chase, but certainty does not exist, only probabilities.Everyone is looking for a fool proof guaranteed way to make money. It is why Infomercials run on TV, there are folks that will buy a promise that leads to nowhere only for the hope that we can fulfill our greed.Personally, my method of late has not worked so well, yet I am still profitable for the year. Why? Money Management and the Mind to willingly embrace what has worked for me for several years. It is imperative to understand the draw-downs that are inevitable in this game of probabilities and understanding precisely what our risk is. We can then begin to accept and embrace whatever Method that appeals to us. It is why one cannot simply go read a book and duplicate results in hopes to achieve our dreams. The Method is at best 20% of the equation. The other two M’s make up 80%. Risk tolerance (Money) and Mind is vastly different with each person.I have a question….If the BIG Institutions have such an edge and supposedly know so much more than the typical trader/investor, why do so many go Bust?The brightest minds of our world have lost billions, even though they were in the KNOW so the speak. Think about…Even those we honor and put into the Investing Hall of Fame, have lost millions/billions and many bust out. Did they lose their method? Did they lose their ability to Sleuth information?
This is an excerpt from today’s SpikeSpeak. Join the group at www.spiketrade.com – and read emails from Alex and Kerry on a daily basis!
A book can have a life-changing impact on a person’s life. Several people said that to me regarding my books. I have certainly come in contact with books by others that have changed the trajectory of my life. I still have a book on my shelf during the reading of which I first got an idea to escape the USSR and come to America. I mean, I was ready for the idea, but the book provided that final straw that brought the structure together.There have been business books that had a trajectory-changing impact on me. Today I want to share with you the latest of such volumes – The Checklist Manifesto by Dr. Atul Gawande.Gawande – a surgeon and a terrific writer – tracks the development of formal checklists to the 1930s aviation and the arrival of multi-engine planes:
“Flying this new plane was too complicated to be left to the memory of one person.” He continues “Faulty memory and distraction are a particular danger in what engineers call all-or-none processes: if you miss just one key thing, you might as well not have made the effort at all. Checklists … provide protection against such failures. They remind us of the minimum necessary steps and make them explicit.”
As I read, I saw striking parallels with trading. “Checklists seem able to defend anyone, even the experienced, against failure in many more tasks than we realized. They provide a kind of a cognitive net. They catch flaws of memory, attention, and thoroughness… They do not try to spell out everything. A checklist cannot fly a plane. Instead they provide reminders of only the most critical and important steps.”Gawande interviews pilots, construction managers, physicians, and financiers in his checklist quest. He shares his own surgical checklist odyssey and provides do’s and don’ts for those who would create a checklist.Reading this book I knew I would be designing ‘Elder safe trading checklist.’ How it went and how it turned out would be the topics for a future conversation. Discussing this with someone who never read the book and worked on his or her own checklist would be like discussing bicycling with someone who has never been on a bike. Read the book, start working on your own checklist – I would be delighted to exchange ideas with you!AE
Dear SpikeTraders,I wanted to share with you
Those of us involved with Spike should surely be grateful to Alex and Kerry for their generous and enduring insights–not the least of which was Alex’s prescient warning last week that the potential was strong for a market crack, which hit hard on Friday. Thanks, Alex, for a nice payday (though my short in Spike was a bust!).Another of Alex’s insights that I appreciate is his Fallen Angel pattern, which I think was first described in Trading for a Living. If you don’t know and love this pattern, reread the book, learn the pattern and hunt these beauties down, because they can be treasures. As a refresher, Fallen Angels were once strong momentum stocks that soared parabolically, only to crash and burn as the institutions left them for dead. If the company stays in business, then the stock tends to trade sideways for months, slowly mending, and building enormous bases. The pattern looks like an elongated “L” with the bottom much longer than the top. Eventually, institutions and investors circle back, as the value players slowly accumulated the shares. Then as other investors start to notice, they burst up one day, break their range and work their way up the right side. Many recover 50% or so from high to low.Fallen Angels make miserable trades as they go sideways, but great trades if you catch them as they break the range. Now that market has lost its goofy love affair with the financials is the time to search for them. In the weeks ahead, money will rotate out of the financials and gold and into value areas.There are many Fallen Angels in the energy sectors, particularly the solar guys–LDK, HOKU, SOL, ESLR, ASTI, FSLR; oils like BAS, ALJ, HES, and coals like JRCC. None that I have mentioned are ready to buy just yet. Put them on a watch list and look for them to edge above the flatlining 200 SMA, pop up and drift back to oversold on the daily.
OTE is a Greek communications company with a market cap of $6 billion. OTE was one of Stephen M’s alternate selections this week. I review each Spikers’ weekly selection and alternates as well as several Spike members picks. I was intrigued with OTE immediately. See the attached weekly chart. OTE is in a very extended trading range. Price is right at support on the Weekly chart. Note the huge volume over the past several weeks. This is a definite change in character. Lots of volume with very little price change. My first thoughts are that institutions and professionals are holding the bag wide open for scared longs. The Greek crisis may be the right external event to transfer stock from the weak to the strong. The second chart is the one that drew me in, the one box P&F.
I have “boxed” the huge trading range. If this is accumulation, both the one point P&F and the three point P&F (not shown) is calling for an upmove to approximately $20 per share. IF this range represents accumulation that is. It could be just a trading range with price in relative equilibrium.But the recent change in character will be telling. It may be worth the risk with a stop around $5.68.Dave C.
Though not cheap, HES, an oil explorer/driller is very much a Fallen Angel, crashing down from $140 to $40. After forming a bottom in October 2008, HES has traded sideways, locked between 50-70, forming the classic “L” pattern. Now 16 months later, HES is starting to get perky, acting like it wants to rise, probably to around 90. Notice the narrowing Bollinger Bands that are foretelling a coming increase in volatility on the weekly chart. On the daily, we’ve jumped the fence as the squeeze kicked in and closed for two days outside the bands–a definite sign of strength. New buys should be on weakness, but pay attention because HES may not pull back much. These big base stocks are gifts and traders should work hard to exploit them.
Take a look in this chart. It is could be a good short opportunity.The last bar is – 0,03.Daniel S – from Brazil
Dear SpikeTraders,I am new to trading and have been struggling to find my strategy and get my admin in order. So I thought I would stop trading even in the very small amounts I am doing. I have been struggling with the MACD and how to work it. I decided that I should go back to the very basics and look at candlestick charts and found a book called Intro to Candlestick Charts by Clive Lambert. This is very basic but I have found it great. I have found that using black and white candles suites me better than colours that I find distracting.I love the psychology of the candlestick charts and this has given me an insight into what is happening in the market and now hanging man and shooting stars are a great way of breaking down charts. Once I have understood this I intend to learn a bit About MACD and add this to my analysis.I am also operating from England and some of the smaller companies are not available for me to trade. I am not unpleased with this as it will force me to look at a small number of companies for a start. Taking my inexperience into account I thought this might be of interest to some of you.3 companies have come onto my radar almost all together as shorts Boeing, Apple and Dendreon and in that order.
Hanging men are formed in an up market. The first is at the end of an uptrend and did signal the start of a downtrend the middle 3 had mixed results but I say they are in a downtrend and therefore not hanging men. Now we look to today and why I am so excited about this short. We have a triple top and 2 hanging men. The Bears are resisting any move higher and the bears are also trying to move the market lower and failing. However the bears are coming alive and any day now we could move lower.
The next example is Apple. There are not so many signals here but again the bears are waking up the hanging man is at the top of a fast uptrend and this is the first move the bears have made. I will need more bear signals before I move but this is in my radar.
The final company is Dendreon. This is very similar to Boeing with a triple or quad top showing the bears are digging their heals in and stopping the market going higher. After that the bears are testing the market with examples of both the Rickshaw and Hanging man. These have both failed so far.I may be seeing something that does not materialize but this market just requires more volume to confirm the down signals and I am going to re-enter this market as a short.