VantagePoint is such a marvelous software package. For those of us who talk about the product, we focus almost to distraction on how wonderful VP is at predicting price direction up to four days in advance when it is time to take a trade. We also know how great the Predicted Next Day High and Low are for assisting us in setting our stop losses.
Wouldn’t it be wonderful if we had an “early warning system” for when a trade is going to turn against us? Would I ask the question if I didn’t know the answer is “Yes”!
Of course we have a warning. It is called the Predicted Short-Term Difference (PTSD). In this article I am going to give you an example of how the Predicted Short-Term Difference can save you loads of profit and help you refine your stop losses. The good news is that this idea applies not only to the yen example shown here but to stocks as well!
The Predicted Short-Term Difference is the amount the predicted 2-day exponential moving average of typical prices one day ahead (P2EMA+1) is above or below the actual 5-day simple moving average close (A5SMA). In plain English, this means how much the predicted moving average is deviating from the actual market 5-day moving average. The good news is that you don’t need to get this conceptually. You can see it graphically on the chart.
The value of Japanese yen futures started to go down in value relative to the value of the U.S. dollar at the end of March. There is a good chance that most of you following VantagePoint indicators went short the yen at that time and had some good profit in the trade by April 3.
At that point, notice how the PSTD began to climb higher at a steep rate. In my research I have noticed that this is an early warning of a potential reversal that can come in the next day or so. In fact, on April 4, the day was an up day with an up close. Over the next few days the bars were red but more within a trading range than downward in momentum. The PSTD gave us a heads up.
How can we use that in our trading? We can pay careful attention to the behavior of the PSTD and set our stops accordingly. It is subtle, but if you see the PSTD start to move in a direction opposite the direction of your trade, it is time to tighten up your stops and pay careful attention to the activity of the following day.
With this yen situation, we would have looked at VantagePoint’s Daily Report and noticed that the PSTD had gone from -0.0120 to -0.0105. Now, in general, that isn’t a big move to see on the Daily Report. However, on the chart, it is a big red flag. So, we want to set our stop either at the Predicted Next Day High or a few points INSIDE the Predicted Next Day High. We do this purely to preserve our profit in the trade.
In today’s markets, we are seeing more interday volatility than ever before. My trading time frame has shortened accordingly, as has my strategy for protecting profit. I am quite content if I have a profitable trade of four days. The Predicted Short-Term Difference helps me a great deal with this strategy.
Happy Trades!
Elizabeth Versace is a Commodity Trading Advisor (CTA) and blogger living in Palm Springs California. She has been studying and trading commodities for the past 12 years. She enters and exits trades using VantagePoint software exclusively and has been using the software for one year (almost to the day). She has extensive experience in testing strategies as well as familiarity with neural networks which is what drew her to VantagePoint software.
VantagePoint Charts
Know Best
by Darrell Jobman, Editor-in-Chief, TradingEducation.com, LLC
Seeing is believing, according to an old expression, but sometimes what you see physically with your own eyes isn’t as revealing as what you see on a VantagePoint chart – at least when it comes to trading and investing.
My wife and I visited China last October and saw numerous major construction projects and surging economic growth every place we went in China. China Mobile stores seemed to be as ubiquitous as Starbucks in the United States, and people seemed to want more of everything. With 1.3 billion people, that’s a lot of demand that will make China a force in world markets for many years.
After visibly seeing China’s boom firsthand and returning home in late October, our conclusion seemed to be pretty much a no-brainer: We have to invest in China! The U.S. economic outlook wasn’t so rosy, but China’s was nothing but impressive.
But what Chinese stocks should we buy? We don’t really know anything about Chinese companies or their accounting practices so how could we trust their reported results or invest in individual company shares intelligently?
The solution, of course, is to buy one of a number of exchange-traded funds (ETFs) investing in Chinese companies. ETFs can be great investment vehicles because they focus on specific industries or regions or some other sector of the market and are traded just like a stock. They don’t have the management fees of a mutual fund and can be traded any time during the day in markets that have become quite liquid.
iShares FTSE/Xinhua China 25 Index Fund (FXI), one of more than 60 major ETFs available on VantagePoint, is an example. As of June 2, FXI is invested in 29 Chinese securities, including familiar names like China Mobile, Petrochina, China Life Insurance, Air China and others. The chart below shows how FXI started to take off in August (Number 1) just before our trip.
VantagePoint indicators caught the move early, with the predicted neural index at 1.00, the predicted short-term and long-term indexes turning up and moving above the zero line, stochastics turning up from below 20 and the predicted medium-term moving average crossing above the actual medium-term moving average. All the signs said buy FXI around 130. Unfortunately, we weren’t paying attention to this chart then.
You can see that we were in China during the boom period for Chinese stocks. The euphoria peaked soon after we got home and decided to invest in a China ETF (not FXI). Like many others, we were caught up in the bullish enthusiasm – should we say “bubble”? – for China. Had we been watching the VantagePoint chart more closely, we might have noticed that all of the bullish indications in August turned bearish in early November, confirmed by the predicted medium-term moving average crossing below the actual medium-term moving average at a point above 200, more than a 50 percent gain in about 10 weeks.
Holding our China ETF in a longer-term investment account and not our active trading account, we weren’t ready to give up on China yet. The second chart below shows VantagePoint indicators going bullish at the end of November (Number 3) and then gave us a bearish opportunity in December (Number 4).
By March, FXI had returned to the vicinity of where its upward march in the fall had begun, and the VantagePoint indicators suggested the start of another bullish move (Number 5) after a couple of missed attempts. Just a couple of observations about predicted stochastics: Maybe it’s the market conditions or maybe it’s me, but stochastics signals seem to be more reliable at spotting bottoms than tops – you can see how indications from stochastics were pretty useless during the fall rally on the first chart – and they seem to be more viable on the second attempt to turn higher.
So where does that leave us on the right edge of the chart? It’s difficult to assess the long-term impact of the devastating earthquakes on China’s economy and how they might dull the positive excitement about the Olympics in Beijing in August. Until Tuesday, the VantagePoint chart looked like FXI was setting up for another bullish run (Number 6). But Tuesday’s sharp setback means we’ll just have to keep our eyes focused on our VantagePoint chart for that bullish opportunity that we envisioned six months ago.
Darrell Jobman is Editor-in-Chief of www.TradingEducation.com , a web site providing free information and education to traders. He is an acknowledged authority on the financial markets and has been writing about them for more than 35 years.
The Balanced Way by Brandon Jones
I wonder how many of you VantagePoint users are successful. I also wonder how many of you VantagePoint users are as successful as you either want to be or think you should be.
I ask these questions because it occurs to me that in trading, as in life, we all tend to be the architects of our own problems. Yes, it is true that forces outside of ourselves contribute mightily to both the good and bad fortune we experience in trading and in life, but ancient wisdom has always taught that we rise or fall as human beings based on what emanates from within, not from what hit us from without.
Hence, my questions above, and, if you honestly answer them, I have no doubt you will understand the point I am making today. If you don’t answer the questions honestly, then my point is unavailable, and this article will have no meaning.
If you are reading this, I assume you genuinely wish to improve your VantagePoint trading, and in that pursuit, you are looking for information that will serve this desire. Well, you have come to the right place (this newsletter) for helpful VantagePoint trading information, but that is just one part of the work needed to be a successful VantagePoint trader. The rest of your work is what you are willing to do to improve yourself emotionally and mentally. The rest of your work happens on the inside, and it has less to do with how the markets flow than you might imagine or care to believe.
One thing that turned my trading around is a book I read, Trading in the Zone, which offered little in the way of actual trading tips. It didn’t offer a specific strategy, nor did it give me a clue as to how I might develop one. No, the book delivered a simple message: Before you can ever be successful at trading, you have to get your head in the right place, and that means controlling your mind and mastering your emotions. If you want more details, I highly recommend you read the book. If you want specific information on how to improve your trading, read on.
VantagePoint trading is no different than trading in general. The fact is that VantagePoint is a tool – an excellent one, true, but, nevertheless, a tool used for trading. The key to success is using that tool in conjunction with the correct trading mindset (among other things). The correct trading mindset includes many important things, but one of the most important is how you “feel” when you are about to make a trade, are in a trade, or have completed a trade. Specifically, do you feel as if you “should” have made more money after a trade is over? Do you feel you “could” make more if you just hold on a bit longer? Do you feel that you “need” to get in or out of a trade quickly? Do you feel like you “want” to change your strategy in the middle of a trade?
If any of the words in quotes above rattle in your head, then this is a sign that you need to reshape your thinking about trading; you need to find balance in your trading. Here is something specific that might help in this process. It is an excerpt from my book about VantagePoint trading.
The Balanced Way
For three years, I have been studying trading markets, and I have read repeatedly that two forces drive markets—fear and greed. This appears to be the commonly accepted belief. How sad and destructive. It implies we only have two ways to trade—from a position of greed or from a position of fear.
I believe we have another way, and I know that I am not alone. I argue, as do a growing chorus of reasonable voices, that we should trade in a more balanced way, in our own best interest. Trading either from a position of greed or fear is not in our own best interest, nor does it serve the greater whole.
Greed fosters and feeds a desire to have more than you need. It is never in your best interest to attempt to acquire more than you need. Fear fosters and feeds poor decision-making skills. Sticking to your trading strategy is the one thing that keeps fear at bay, and keeps you making good decisions.
The Balanced Way is to trade outside your emotions, to trade, if you will, from a position of objective, mental strength, not greed or fear. Trading from this place:
makes for less mental and emotional volatility;
embraces a certain calmness and acceptance with the outcome of any trade;
creates space to see every trade clearly, in sharp focus;
places all trading in a strong, ethical context, and;
opens the door to greater probability of success.
Most important, The Balanced Way returns to me more profit in the long run. Trading in this mode helps eliminate those needless, emotional errors. I have less greed-based and fear-based losses. I take profit based on my modest, pre-set targets, and I emotionally let go of a trade that hits my calculated, pre-set stop. I make my rules and stick to them.
VantagePoint will give you potential trades with a high probability of success. VantagePoint provides tools that will help you confirm and time those potential trades. VantagePoint was designed to do this for you. But what it cannot do is shape your trading mindset so that those potential successful trades actually become reality. What it can never, ever do is turn you to the inside in your search for success. Only you can come to understand that the outside world is simply a combination of powerful forces at work without any consideration of who you are or what you want.
Markets operate in the outside world, subject to the same forces. Winning or losing happens on the inside, in your mind where you make decisions. And those decisions have to be made objectively, without emotion, with a clear focus on what you know is in your best interest, not what you believe, or think, or hope is in your best interest. Control your mind and master your emotions.
Brandon Jones is an entrepreneur, a writer, and an educator who happily lives on a ranch near the beautiful coast of Central California. Although not a trader by profession, he trades on a regular basis utilizing VantagePoint software. This simple act keeps him happily living on a ranch near the beautiful coast of Central California.
VantagePoint View:
More Downside Pressure
for Crude Oil Prices
by Jim Wyckoff
July crude oil futures at the New York Mercantile Exchange have sold off from the contract and all-time high of $135.09 a barrel recorded on May 22 and are presently in a two-week-old downtrend on the daily bar chart. Prices also recently hit a fresh three-week low.
Traders of all commodity markets need to continue to keep one eye on the crude oil futures market. It is the key "outside market" that has influenced price direction in many other commodity futures markets.
One strong early technical clue that the crude oil futures market has established at least a near-term market top and will experience a more significant downside "correction" would be two very strong down days in a row, with prices closing more than $4.00 a barrel lower each day.
By using VantagePoint Intermarket Analysis Software (www.TraderTech.com), a trader can glean very early clues on potential near-term price trend changes or continuation of present trends. These near-term clues provided by VantagePoint can give a trader a key edge.
Note first on the VantagePoint daily bar chart for July crude oil futures that the predicted 4-day EMA line has crossed below the actual 10-day SMA close line. That's a bearish clue. Also, both lines are now trending lower on the daily chart, also a bearish sign. This suggests July crude oil prices will continue in a price downtrend for at least the near term.
Another “outside market” that is critical to the pricing in a number of other markets, gold futures, is also exhibiting the same types of bearish VantagePoint indicators as crude oil. Note on the charts that while crude oil has just recently started to track lower, gold futures have already set up a pattern of several lower highs (and, interestingly, on a short-term basis, also a series of higher lows). The indications on these charts suggest that the bout with runaway prices in commodities influenced by these two key outside markets may be over.
On both the crude oil and gold futures charts, VantagePoint’s Predicted Neural Index has also moved to 0.00, another short-term bearish indicator. The Predicted Neural Index, a proprietary indicator, predicts whether or not a three-day simple moving average of the typical price will be higher or lower two days in the future than it is today. The Predicted Neural Index compares two three-day moving averages to one another – today’s actual three-day moving average with a predicted three-day moving average derived from intermarket analysis data.
When the predicted simple three-day moving average value of typical prices is greater than today’s actual three-day moving average value, the Predicted Neural Index is "1.00," indicating that the market is expected to move higher over the next two days. That type of information can be very helpful for shorter-term traders establishing shorter-term positions in markets.
The Predicted Neural Index is either correct or incorrect so its performance can be measured in terms of percent correct to produce the accuracy statistics cited for VantagePoint, which has a predictive accuracy rate of around 80% across a wide range of markets and time spans in ongoing research
Jim Wyckoff is the senior market analyst with www.TradingEducation.com . The site is dedicated to helping traders at all levels learn their craft better so they can improve their odds for trading success. The site focuses on current market conditions as well as a variety of educational materials that will give traders of stocks, currencies, futures and options sound background information about trading and important trading concepts. Jim has spent nearly 25 years involved with the stock, financial and commodity markets. He was a financial journalist with what is now the Dow Jones Newswires service for many years, including stints as a reporter on the rough-and-tumble commodity futures trading floors in Chicago and New York. As a journalist, he has covered every futures market traded in the U.S., at one time or another. Not long after he began his career in financial/commodity market journalism, Jim began studying technical analysis. By studying chart patterns and other technical indicators, Jim realized the playing field could be leveled between the "professional insiders" in the markets, and traders/analysts like himself. As a proponent of Intermarket Analysis, VantagePoint Intermarket Analysis Software is one of the tools in Jim’s tool-box.
Capturing Brazilian ETF’s
Bullish Trend with VantagePoint
by H.U.
Part II
In the volatile global market that exists today, it makes logical sense to trade in stocks that are riding on long-term trends. In the iShares MSCI Brazil Index Fund (EWZ), we have an exchange-traded fund (ETF) that trades like a stock and is riding up on the long-term trends in agriculture and natural resources.
With the help of VantagePoint indicators, it is possible to find the entry points that will help you make profitable short-term or long-term investments in EWZ. The one-year VantagePoint chart of EWZ below makes it obvious that the Brazil ETF is on a long-term upward trend.
Meanwhile, the U.S. stock market is going through a bearish phase now, as the VantagePoint chart for the Dow Jones Industrial Average (DJIA) below clearly illustrates.
No one has a crystal ball to tell exactly how long this bearish phase in U.S. stocks will last. However, these pullbacks may be an ideal time for you to buy EWZ. Because the U.S. market is in a bearish phase, you could wait for EWZ to fall further to get confirmation from the VantagePoint indicators before entering into a trade.
On the DJIA chart wait until the blue line (predicted 4-day EMA) is above the black line (actual 10-day SMA), the Predicted Neural Index is at 1.00 and the predicted short-term difference line is moving upwards at the same time these same conditions are providing the same confirmation on the EWZ chart. You should also make sure that there is significant volume to accompany the above confirming VantagePoint signals before buying EWZ shares.
A sample of a previous entry point with these VantagePoint indicators confirming a bullish trend is shown by the arrow on the chart below:
English merchants had a strong impact on the Brazilian economy from the start of the 17th century, trading especially in Rio de Janeiro, Recife and Salvador. By mid-l9th century, imports were predominantly from England. The English also dominated areas such as banking, foreign lending (especially the House of Rothschild), the railways, electric utilities, and shipping in Brazil.
At the end of the 19th century, the United States became the major buyer of Brazilian exports. The first republican governments of Brazil attempted to stabilize the economy by revitalizing production, but this was hardly successful due to the worldwide effects of the 1929 depression, which had forced the country into new readjustments.
Industrialization first took place during World War I, but it was only from the 1930s that Brazil’s industrialization was of modern economic performance. In the 1940s, the first steel plant was built in the state of Rio de Janeiro at Volta Redonda with US Eximbank financing.
The industrialization process from the 1950s to the 1970s led to the growth of important sectors of the Brazilian economy such as the automobile industry, petrochemicals, and steel, as well as the completion of large infrastructure projects. In the period after World War II, the annual Gross National Product (GNP) growth rate for Brazil averaged at 7.4 percent until 1974.
In the 1970s, Brazil took in massive liquidity from U.S., European, and Japanese banks to finance infrastructure projects and works of state enterprises. The result of this excess liquidity was positive with Brazil's Gross Domestic Product (GDP) increasing at an average rate of 8.5 percent annually from 1970 to 1980 despite the impact of the 1970's world oil crisis, and per capita income rose fourfold.
Excess debt, adjustments
However, there were negative consequences to the huge capital injections of the 1970s. In the early 1980s, a sudden increase in interest rates triggered the Latin American debt crisis. Brazil was forced to comply with stringent economic adjustments that reversed previous growth rates and became negative. The sudden suspension of capital inflows into Brazil meant that Brazil was no longer able to invest. Brazil’s debt burden affected public finances and brought on a huge inflation problem.
After the mid-1980s, a program of strict measures was adopted, aimed at monetary stabilization. These measures included ending wage indexation (which was a policy of indexing wages and contracts to inflation) and the freezing of all prices. In 1987, the government stopped its interest payments on foreign commercial debt until a debt rescheduling agreement with creditors could be reached. Although such measures were not perfect, Brazil’s economy continued to grow by the end of the 1980s, and a positive trade balance was able to service Brazil’s debt.
The 1980's debt crisis brought the end of Brazil's "import substitution" policy (a plan to grow Brazilian industry by producing certain goods itself instead of importing from overseas) and opened up its economy.
In the early 1990s, Brazil adopted a comprehensive scheme of economic reforms, including complying with a strict fiscal policy, tax reform, trade liberalization, deregulation, privatization, and the establishment of a legal and structural framework to attract and increase foreign investment. As a result, privatization accelerated, especially in two important industries – steel and fertilizers. Brazil’s revenue growth is mainly the result of all these economic reforms, which drastically reduced Brazil’s debt burden.
Economy open, growing
Brazil has become one of the most open economies in the world with no quantitative restrictions to imports, and its average tariff rate decreased from 32 percent in 1990 to 7.1 percent in 2005. Since 1991, foreign liquidity has once again flowed into Brazil. Foreign direct investment in 1992 reached U.S. $3.2 billion, the highest since the early 1980s, and grew to U.S. $35 billion in 2007.
Brazil now operates a relatively free-market and export-dominated economy. Its nominal GDP surpasses a trillion dollars, making Brazil’s economy the tenth largest in the world and the third largest in Latin America, measured by purchasing power parity. Its nominal per capita GDP surpassed U.S. $9,000 in 2007, due to the strong and continued appreciation of the Brazilian currency, the real, for the first time in this decade.
Agriculture is an important part of the Brazilian economy and is a key factor for economic growth and foreign exchange. Agriculture makes up 40% of Brazilian exports and gave Brazil a positive agricultural trade balance of $43 billion in 2006. Brazil is the world's largest producer of sugarcane, coffee, tropical fruits, and frozen concentrated orange juice (FCOJ) and has the world's largest commercial cattle herd (50% larger than the U.S. herd). Brazil is also a significant producer of soybeans (second to the United States), corn, cotton, cocoa, tobacco, and forest products. Brazil also produces poultry (second to the United States), pork, milk, and seafood.
Brazil has a technologically advanced industrial sector that is diversified across industries ranging from automobiles and parts, other machinery and equipment, steel, textiles, shoes, cement, lumber, iron ore, tin, and petrochemicals to computers, aircraft, submarines and consumer durables. Most major automobile manufacturers have production plants in Brazil (Brazil was the first capitalist country to bring together the ten largest car assembly companies within its territory).
Brazil is involved in space research with the country having a Launching Center for Light Vehicles and is the only country in the Southern Hemisphere to form the team responsible for constructing the International Space Station (ISS). It is also a pioneer in many fields, including ethanol production and deep water oil research (where 73% of Brazil’s oil reserves are extracted).
Brazil also has a diverse and sophisticated services industry. Mail and telecommunications is the largest component, followed by banking, energy, commerce, and computing. During the 1990s, Brazil's financial services industry was significantly reformed and is now relatively stable, offering domestic companies a wide range of financial products and services. The largest financial firms are Brazilian (and the two largest banks are state-owned), but U.S. and other foreign financial institutions have an important share of the market.
Brazil is a member of organizations such as Mercosur, SACN, G8+5, G-20 and the Cairns Group. It has hundreds of trade partners, with around 74% of exports consisting of manufactured or semi-manufactured goods. Brazil's main trade partners are the European Union (around 26% of trade), United States (24%), Mercosur and Latin America (21%) and Asia (12%).
Natural resource riches
Brazil is rich in natural resources. Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings with Brazil being the world's second-largest producer of iron ore. There are deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals. High-quality, coking-grade coal needed in the steel industry is in short supply. Other important products include tin, quartz crystal, gems, wood and industrial-grade diamonds. Brazil also produces significant amounts of petroleum, mostly from offshore wells.
The Brazilian government has taken on an energy policy aiming to reduce dependence on imported oil. In the mid-1980s, imported oil accounted for more than 70% of Brazil's oil and derivatives needs; this dependence is now almost zero. Brazil announced in early 2008 the discovery of the Tupi and Carioca oil fields off the coast of Rio de Janeiro, which are estimated to hold oil reserves of more than 40 billion barrels. Output from the existing Campos Basin and the discovery of two new fields could make Brazil one of the world’s leading oil producers in the near future.
Brazil is also one of the world's leading producers of hydroelectric power. Of its total installed electricity-generation capacity of 90,000 megawatts, hydropower accounts for 66,000 megawatts (74%).
H.U. has worked in funds management and has been trading in stocks for over 5 years. She is currently a postgraduate research student at a university and specializes in US stocks, ETFs, currencies, and overseas stocks focusing on commodities. As a proponent of Intermarket Analysis, VantagePoint Intermarket Analysis Software is one of the tools in H.U’s tool-box.
Early Warning Device
VantagePoint Charts
Know Best
The Balanced Way
VantagePoint View:
More Downside Pressure
for Crude Oil Prices
Capturing Brazilian ETF’s
Bullish Trend with VantagePoint
