Here is a fascinating article about the evolving turmoil and change in the world's financial markets.
Commdities Boom? You Ain't Seen Nothin' Yet
I am constantly amazed that so many people try to predict the future. I neither agree nor disagree with the assessment in the above-linked article. I honestly don't know. I just try to watch the charts and do what the markets tell me they want. This is an insightful analysis of the predicament that we find ourselves in.
Here is another:
Higher Margin Requirements Won't Dent Ag Bull
This second one sure appears to be right on the mark, since the dent in agricultural commodity prices appears to have been short in duration. Many commodities are already showing resurgent signs of price strength.
Saturday, April 5, 2008
Here is a fascinating article about the evolving turmoil and change in the world's financial markets.
Friday, April 4, 2008
Interesting article from Qatar's English-language daily news service. Take note in the article now many different countries are panicking to secure sufficient foodstuffs for their peoples:
I am making some changes to my charts in the past few days, adding back in the 7 and 23 period MAs (2nd panel) from Cahen's methods. I had deleted them because the Bollinger Moving Average is nearly identical to the 23 period Moving Average (the Bollinger MA is just a 21 period MA, vs. the 23 period MA), but I am finding greater value in visualy having the two MAs together in a single panel.
The job losses for January and February were also revised downward by an additional 67,000 jobs, and the household survey shows a stunning job loss even greater than the headline -- a 434,000 loss. The main survey tends to omit small businesses, while the household survey captures this aspect of the job market. This makes the household survey tend toward greater accuracy.
This is a poor jobs report. If there is any good news here, it is that that market expects that the worst in the economic news may be past, and there is the sentiment that the Fed has gotten ahead of the curve and things will soon be on the mend.
Thursday, April 3, 2008
This is a very good example of a set of parallels. Corn was the only grain I traded today. Spreads were too wide, and trading was too erratic, to trade soybeans or wheat. Prices closed below $6 -- with settlement literally just one tick shy -- but I suspect we'll see prices close above that level very soon.
Fundamentals remain strong according to this Washington Post article:
Grain Prices Rise on Supply Concerns
Other markets are showing similar signs. Even gold prices have flattened and liquidity is fairly poor at this time.
Under circumstances like this, I will trade for just a few ticks in either direction on the most liquid markets, which are the 10-year treasury and S&P 500 Index futures. I am willing to take just a few ticks of profit.
I suspect that much of this flat trading is due to the on-going testimony of Fed and SEC officials before the Senate Banking Committee today. Financial market participants are hanging on almost every word of these officials for information about future movements of the markets.
Soybeans and corn have opened the days session nearly at the levels that they ended yesterday. Wheat is higher than yesterday's settlement, but flat from the day's open. I have yet to place a trade.
I am anticipating fairly subdued trading in grains today compared to recent weeks. No heavy or changed news.
The stock market today is not going to like this. It may also bode poorly for the payroll report tomorrow. If jobless claims over the next few weeks continue on a downward path, stocks will likely fall, and the US Dollar will very likely plunge again as well. And that will drive the Fed to lower interest rates further, and commodities will likely surge higher again. Sounds like a broken record.
And we all thought we had hit the bottom.
Let's hope tomorrow's jobs report is better than expected, and that future jobless claims surprise to the downside.
Wednesday, April 2, 2008
Corn prices couldn't break through the $6 price handle today, even though new all-time record highs, and new all-time closing highs (for a front month contract) were both reached. Eventually, they will, especially if rainy weather forecasts continue for the grain growing regions of the United States. This would make corn planting less likely, but might also increase the likelihood of more soybean acreage (too bad, however, that soybean seeds are also in short supply this spring). I wouldn't be at all surprised if the $6 handle was broken during overnight trading tonight, especially since the day session ended so close to its highs for the session. Fundamentals for all the grains remain bullish, based upon tight world supplies, continued political unrest in South America, rainy growing conditions, and (once again) a weakening US Dollar. One of my favorite news sources even suggested that we may have already seen the low prices for all the grains for the entire growing season. He thought that prices would go nowhere but up from here.
Unfortunately, not all (perhaps most) trades do not fit this picture-perfect pattern and are therefor not always this predictable. Thus, we must also learn to make profitable trades when circumstances exist that are less than optimal. I have found when reading trading books, that the authors only show examples in their books that are photo perfect like this one. However, the markets quite frequently present many trading opportunities that are less than photogenic, but also highly profitable. Many superb trading opportunities are manifested in these patterns also. Becoming a trader capable of recognizing these more dynamic opportunities is an important skill to acquire.
Here is a link to a powerpoint presentation that includes these charts:
March 2008 USDA Planting Intentions
Corn -- Stocks at 30 year lows
Soybeans - Stocks at 30 year lows
Wheat -- Stocks at 60 year lows
US Dollar - Longer-term perspective
The influence of investors and funds
Tuesday, April 1, 2008
And this is no April Fool's.
Great day! Unless you're short!
Here is the text of some of that message:
I may have mentioned in some of my blog posts that I was using some other methods of exiting trades (not Cahen’s). I still look for Cahen’s exits, but I have found that I can time them better than Cahen teaches in his book. The EMA usage is the best one. Right now, I’m also playing with an 11 period Weighted MA. It is slightly smoother than the EMA, and it tends to get me both IN and OUT of a trade slightly earlier. I want to code the one in TS so that it changes color like the one I coded for EMA (which I have attached to this email). I have put the WMA on my charts as a dotted white line (which you might notice in the charts on my blog – they’re barely noticeable). I’ve noticed that at some intermediate point in a trade, the WMA crosses over the EMA. At that point, I begin to ignore the Klinger Volume indicator. That point is somewhat of a turning point, because the trade is no longer vulnerable to possibly losing money. I am thinking about this WMA/EMA in terms of possibly programming it into some code at some point.
By the way, in his Encyclopedia of Technical Analysis Indicators, Robert Colby found that the WMA was almost as successful as the EMA – but not quite. It tends to be slightly smoother, much like the
and Guassian MAs. However, he told me in an email that he found the EMA he tested was only effective on daily charts --- not intra-day charts. He indicated that he ONLY tested on the daily charts. He didn’t know if the EMA was successful on intra-day charts. But he went out of his way to mention this fact. However, he also wasn’t using tick charts, as I am. My own experience with the EMA is that they are much more successful with tick charts than short-term time interval charts like your 10 minute one. I think this is because tick charts measure orders through the system rather than by some arbitrary time interval. The more orders that come through the exchange, the faster the tick chart candles print across the screen. While within 5 minutes, much can happen on a 5 minute chart if a shock hits the system, on a tick chart, as soon as the shock hits, the candles start to print across the screen very rapidly. And that affects the Bollinger Band patterns very quickly that Cahen teaches. In an automated system, entries and exits could happen very quickly and dynamically. Hull
I have also found that on a strong move in the markets, prices may exhaust themselves on a shorter (tick charts, 3 min) time frame temporarily, but as time proceeds and prices get close to the EMA on the higher time frame (10-15 min), they tend to rebound off the EMA in the higher time frame (15 min) and continue in the original direction. I suspect it is because traders who are trading the higher time frame tend to add to their positions as prices begin to exhaust themselves. It is a rather remarkable phenomenon. Hence, if I am adhering to Phantom’s Rules, I will be constantly adding and removing contracts with the ebb and flow of the market. This would be extremely difficult – not impossible – to code into an automated system. Perhaps an automated system is one that will evolve over time as we find new twists on how to trade more accurately.
I can read Cahen’s book a dozen times, and I learn something new each time. While the translation is a little rough, most of it makes sense. You should have seen the translation of his earlier book published in 2001. It was so bad that some parts couldn’t be understood – by anyone! Cahen told me that a non-trader did the translation. It showed!
I agree with your thoughts on coding a completely automated system for the reasons you stated. Mark Douglas, in his book, says that a completely automated system ultimately fails. I’m not quite so fatalistic about it as he is. I know there are people who have accomplished it. However, they tend to work on one trading instrument, but not another (for example, it might work on the S&P mini, but not on gold or crude oil).
Douglassays in the book that automated systems tend to work for awhile, but as the market changes, they lose effectiveness over time. This is another reason why I believe that any trading system must be DYNAMIC in nature. It must use indicators, support and resistance, etc. that are as dynamic and changing (able to adjust to change) as the market itself transforms and transmutes itself. What a challenge!
Complete automation might be very difficult to accomplish. For example, I keep very tight stops when I jump into a trade, but as the trade makes more money, I become somewhat more easy-going about it. Phantom describes this in Chapter 10 of his book (the one about John Denver). In fact, as a trade becomes very profitable, I will move to a higher time frame to manage it. I have moved from the tick chart to the 3 min chart for soybeans this morning. I will probably manage the soybean trade on the 3 min chart the rest of the day. How does one code THAT into software?
Another problem in designing an automated trading system is what to do when the prices lock limit. A system would need some mechanism to detect that and either exit a trade or not execute new trades. Fortunately with the expanded limits, this is becoming less and less of a problem.
There are numerous little iterations and subtleties that I use in my trading. Another one is that the longer a trade continues, the poorer the Klinger Volume indicator works. I also tends to work only for the direction of the prevailing trend. Klinger is great for getting me into a good trade early, but then it loses its effectiveness. Klinger is also very good when the market moves back and forth, up and down like a sine wave between flat Bollinger Bands. It is used for entry and quick exit of non-profitable trades, but is not effective for exiting highly profitable trades. Once my trade reaches about $150-200 per contract, I pay little attention to the Klinger Volume indicator.
Unfortunately, when I study the fundamentals, they often do. I have found that there is always someone else who has more information, or has that information sooner than I do. However, as soon as traders start to act on the information, I see that activity manifested on my chart within moments. Then, I will take action. It is usually several minutes later than I learn the fundamentals-related reasons for what occurred.
Monday, March 31, 2008
If it ain't broken, don't fix it!
I am receiving more and more requests from other traders who request my thoughts or suggestions on their personal trading. I am extremely gratified that other people value my opinion and would seek my advice. Unfortunately, I don't feel I can do this at this time-- with one quasi-exception that I will explain below -- for various reasons:
- There are simply too many requests for my time and ideas than I could possibly make the time for. I receive many requests each week for help with trading. Sometimes I receive several requests each day. For practical reasons, this would be impossible.
- My trading blog is one way that I can share the (limited) knowledge and expertise I have with other traders. In some cases, I may choose to address questions that I hear frequently by posting some ideas on my blog.
The primary purpose of my blog is as the disclaimer says at the bottom. It is my personal trading journal containing my thoughts, methods, and trades. They are also my successes -- and occasional failures! I started this blog to replace the trading journal I kept on my PC. It keeps me accountable to myself for continued progress in my trading, and helps me to crystallize the things I have learned in a written record.
If all this serves to help other people at the same time, then so much the better! But I take no responsibility for what others take from my blog, what they learn -- or for their mistakes!
- For legal reasons, I am reluctant to offer suggestions. I am unwilling to open myself to even the remote possibility of a lawsuit. By giving free personal (one-on-one) advice to other traders, there is the potential of opening myself to unlimited liability without any compensating reward. It simply doesn't make sense. Or should I say, "cents".
Trading and Changing Dynamically
Traders must always remain adaptable and able to change to new circumstances. Phantom, in his book, says that a key skill for traders is to be capable of "behavior modification". Sounds simple, but its not! It is perhaps the most difficult aspect of this business!
We must be flexible and willing to change at all times. This is partly what I am referring to when I speak of trading dynamically. We must always change and adapt with the times! The markets are constantly changing like the ebb and flow of the tides in the ocean. This is one reason why black box trading methods eventually always fail. They are fixed -- static -- rather than dynamic. Something dynamic is something that is constantly shifting, adjusting, moving, and improving. If we are to survive on the seas, we much change and adapt with the markets! Right now, the stock market indexes are functioning in a vastly different manner than they were one year ago. Have our trading methods changed dynamically to fit them?
I know soooo many traders that trade only the stock index futures. They always trade the Russell 2000 or the S&P 500 futures -- no matter how bad the charts look, no matter how tight the trading range that the index is following, and no matter how much money they lose! Can you spell "stupid"?
I trade primarily soybeans. I trade other instruments (currency futures, gold, stock indexes, treasuries, etc.), but I mostly trade soybeans because the charts look clean to me, they are liquid, I can get good executions, they trade slowly enough that I can get in and out with accuracy, etc. I will probably continue to trade soybeans for some time to come. However, when circumstances change, I must also change. I will trade whatever instrument works well for me and has good-looking charts. (I know, I must be a raving lunatic to refer to a candlestick chart as "good-looking".) When the charts don't look right to me, I change to another trading instrument that does look right.
To continue to trade the same instrument regardless of how the tides in the financial markets shift, invites financial disaster. I'm in this business to make a living, so I can't afford the financial disaster of rigid, "static" trading. Go ahead and dig in your heels. I'll change when circumstances warrant!
Back to Corn
Welcome to the world of trading corn futures!
If think all the activities I mentioned above are too much work, then you are probably a gambler, not a trader. Trading is work! If you think its easy, you're deceiving yourself!
This business is one that is appropriate only for highly disciplined, meticulous people. It is not one for wreckless adrenaline junkies! It is a business for people who have trained themselves to stay with a program for many years. It is not one for people who are akin to get-rich-quick schemes, playboys or high rollers. Engineers and air force pilots tend to make good traders because they are methodical and disciplined. Hot heads don't!
Women also tend to make better traders than men, although I have no idea what causes this particular phenomenon. This is merely an observation, not a commentary or opinion. But its also true, generally!
If you are committed to the changing your life and character to become a master of self-discipline, welcome to the futures business. If you think you are the exception to the rule, then you will lose all your money. If you are committed only to an easy way to wealth, you'll be eaten alive!
For the S&P 500 Futures
Relative disorder at 50 ticks
Appears much more orderly at 150 ticks
Order In the Charts!
Different Ticks at Different Tocks
The US Dollar Index has continued to hold support around 71.75 -- barely. Until a rebound higher becomes established, weakness is still the dominant theme for the Dollar. Otherwise, more bad news on the US economy could push the Dollar Index lower and set off a new round of selling.
Following the release of the USDA Crop Report this morning, corn briefly set a new record high price before back off somewhat. The price of corn remains in record territory, however, with a previously-set record closing high price of 579 4/8 set on Mar 11th for the May 08 contract.
Wheat has again reached its daily lock limit down price, where it remains. However, the ask pool is relatively small.
With the higher prices of food (like corn and soybeans) that are being driven by the idea of making fuel out of them, more and more forest land around the world is being cut down in order to grow more of these grains. Thus, these forest lands that would have helped alleviate some of the greenhouse effect of carbon-based fuels are being cut down to grow even more ethanol-based biofuels.
This is a particularly stunning development, given that the study was done by an environmental group, the Nature Conservancy. It is an on-going study that will continue to be completed and updated annually.
Corn -- less than anticipated (bullish for prices)
USDA estimate: about 86,000
Soybeans -- more than anticipated (bearish for prices)
USDA estimate: about 74,800
Wheat -- about as expected
Bloomberg article link