What to do when there is nothing to do by Elizabeth Versace
The publishers of this wonderful newsletter love it when I write an article that has a whole lot of charts and a few words to boot. This article is going to be different. In fact, this article is going to be about nothing. It is going to be about nothing because there is nothing to do.
If you are a trader, being told that there is nothing to do is like being told you can’t have the ice cream sundae that is melting on the table in front of you. We can’t do it. We pace, we sweat, we swear we are going nuts – like on that melting sundae.
The secret to being a successful trader is knowing when to do nothing, not having all of your money invested at any one time and being vigilant for emerging opportunities.
Just like it makes little sense for a small trader to get involved in thinly traded markets that have little open interest such as rough rice, oats, orange juice or lumber, it makes no sense to trade during periods of very light volume such as this pre-Labor Day week and the week between Christmas and New Year’s. During weeks like this, small things can mount up to big losses. I prefer to stand on the sidelines and watch.
What do I watch? Well, I do a lot of synergistic leg work. I read a lot of newspapers and web sites. I study VantagePoint to see what may be coming. I look at the predicted differences for crosses that tell me a change is coming.
As you can see, there has been a negative crossover in the U.S. Dollar Index, and there has been a positive crossover in gold. The fall of the dollar is coming. Some of you may even be long gold at this point. If you are long, terrific. I do not have a position in gold. I’m watching.
We can now see what is coming. The credit spread is widening, wider than before the collapse of Bear Stearns. The summer is waning. Fannie and Freddie and Lehman are waning with it. Oil is doing whatever oil is doing. And, if you are paying attention, you will assume that the dollar is going to drop like a rock along with the stock market and that gold is going to rise. But, when and how?
The answer is not now, with the exception of gold, which may be the warning bell for the whole shooting match. There is nothing to do but be patient and wait. Labor Day will come and go and then the markets will resume their full fall swing. Something will happen and a cascade of events will create new trading opportunities for us all. The key is to be patient and let opportunities come to us. If we are successful at nothing, we have a great chance to make something when the time comes.
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.
As the Trend Turns . . .Getting into the Next Move
by Darrell Jobman, Editor-in-Chief, TradingEducation.com, LLC
Extended tradable trends don’t happen that often in many markets – those trends that move relentlessly up or down without too many large countertrends along the way to interrupt the steady advance or decline.
If you are an experienced trader, you know that even trending prices are more likely to gyrate enough to hit your stop and kick you out of a trend before the big money is made. In some cases, when a market is headed in one direction over a longer-term period, the swings in prices within the trend are so choppy from day to day that a market is almost untradable or at least difficult to trade with a trend-following strategy. The E-mini S&P 500 seems to be in that category more often than not recently.
So, when an extended trending opportunity does occur, you need to take advantage by riding it as far as you can go. Of course, you never know when a price breakout is going to turn into an extended trend so you need to have a technique that can also abandon a position if the trend doesn’t materialize as you had hoped.
My previous article discussed using the predicted next day high from VantagePoint Intermarket Analysis Software as the basis for a strategy designed not only to ride a strong downtrend but also to put you in a position to get out quickly when the market sentiment changes. Using a unique set of data produced by intermarket analysis, VantagePoint’s indicators have the additional advantage of indicating places for stops that are logical, yet different from the obvious stop locations that most other traders will use based on traditional technical analysis.
To review the strategy from the previous article briefly, once you get into a downtrend, place a stop above VantagePoint’s predicted next day high that usually is far enough away to keep you in an extended downtrend but still close enough to minimize losses if the downtrend reverses. After riding the downtrend, you can use the predicted next day high to exit the trend trade near the bottom and possibly take a new position in the opposite direction. We’ll step through a continuous gold futures chart for an example.
1 – VantagePoint offers several indicators that can help you get into a trading position. If you use a typical moving average crossover strategy – the predicted medium-term moving average (blue line) crosses below the actual medium-term moving average (black line) in this case – you would have gotten short on the open July 23 around $945 an ounce. Keeping a stop $5 ($500 per contract) above the predicted next day high (orange line), you would have remained short until July 31.
2 – The predicted high for July 31 was $915.10 so your stop would have been at $920.10. The prices spiked to a high of $925.60 and would have been more than enough to activate your stop to take you out of your short position with about a $25 profit. Would you have gone long at that point? Possibly, but you didn’t have much support from other VantagePoint indicators other than the predicted neural index reading of 1.00.
Watching market action for a couple of days and reasoning that the money you might be risking is the market’s money and not your own money, you might have re-established a short position when prices slid through the July 30 and Aug. 4 lows around $893 (horizontal dashed line). Alternately, you might have placed a sell stop below the predicted next day low (not shown on this chart) to get short again in the same vicinity.
3 – Keeping a stop $5 above the predicted next day high, you ride the downtrend until Aug. 13 when you have to make a decision. You realize the market is probably getting somewhat oversold by now, the white candle suggests some bullishness, the market closes near the predicted high, the predicted neural index is at 1.00, the predicted short-term difference (red line) has turned up . . . What should you do? If you stay with your trending strategy and keep your stop $5 above the predicted next day high of $830, you are still in a short position as the market high on Aug. 14 is $831.90.
4 – The situation on Aug. 18 is much like it was on Aug. 13 except that the predicted neural index is still at 0.00. After a long run to the downside that has dropped prices below the psychological $800 level and reached the lows from late 2007, is it time to take the money and run? If the environment is as inflationary as some economic reports indicate, are gold prices likely to continue sinking much further? How are crude oil prices and the value of the U.S. dollar influencing gold at this price level? The predicted next day high is $801.30, meaning your stop $5 above that level would be at $806.30.
5 – The actual high on Aug. 19 (long white bar) reached $814.50, well beyond your stop price. So you are out of your short position with a profit of about $90 per ounce or $9,000 per contract. That’s the kind of trend move you are really after.
But the question left after such a trend is: Are gold prices ready to bounce back to become a tradable uptrend? After the big up day on Aug. 19, the angle of the predicted medium-term moving average is not pointing down for the first time in a month, the predicted short-term difference (red line) and predicted long-term difference (green line) are both pointed upward and predicted neural index is at 1.00 (vertical dashed line). The market is still a ways from a medium-term moving average crossover indication, but the early indicators are all bullish.
That suggests it is time to reverse course with a long position around $810 and to bring a strategy using VantagePoint’s predicted next day low into play to capitalize on an uptrend. But that’s a strategy that will have to wait for another article . . .
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.
Flying By The Seat Of My Pants
by Brandon Jones
The other day I was thinking about my next column for this newsletter, and it occurred to me that those of you who have not read my book about VantagePoint know nothing about me, other than what I have written in this newsletter. I realized with that thought that I should have introduced myself in my first column.
Well, I didn’t, so I decided to correct my error in this column, which is primarily an excerpt from my book explaining how I came to be a VantagePoint trader …
When I first started trading, creativity and intuition were pretty much the only tools in my toolbox. Flying by the seat of my pants was fun, as long as I made trades that came up on the positive end of things. It may or may not be true, but I have read that many beginning traders end up losers because they start out winners. They end up losers because creativity and intuition paid off in the beginning, so they “learned” that this approach works. As it was in my case, and probably with many others, I started out a winner utilizing this freewheeling strategy, and I saw no reason to change – that is, until I became a loser. At that point, after having my trading stash cut in half, I realized I needed to either figure it out or give it up. Thus, I made a commitment: either I would learn how to do it successfully, or I would give it up. I made that decision in the late winter of 2006.
For the remainder of the winter and into the early spring of 2007, I researched and read excellent material on trading. In that span, I realized I needed two things to succeed — an edge and a strategy. I understood that to get my desired edge, I needed trading software, as I clearly lacked the training to trade successfully as a fundamental or technical trader.
So, I began to “try out” some of the more highly-touted trading software packages. What I learned, simply stated, is they did not work for me. I became disillusioned—I stopped trading. Then, as life always offers, opportunity came to me. In early May of 2007, I received a call from a delightful person who informed me that she was following up on a request I made about trading software. I did not remember the software, or even when I inquired about it, and I told her so. Not at all bothered by my admission, she politely asked if I had a few moments. My mind screamed, “Please, no, not another useless pitch,” but my mouth uttered, “Sure, why not?” And so, she did, and when she was done, what she told me seemed to make sense (intermarket analysis and neural networks). I agreed to the two-week trial.
I almost gave up after the first week. I could see the VantagePoint potential, but I could not make a good trade. Then, for the second time in a little more than a week, opportunity knocked.
One day, as I filtered my way through the threads at TraderChat.com, I came across a book suggestion that would first shatter and then rebuild my trading approach. The person stated that the book changed his approach and his trading status from unsuccessful to successful. Somehow, in my tortured, mental trading state, I convinced myself to buy and read the book, Trading in the Zone.
From the moment I opened the book until I closed it two days later, I realized the book contained the key to opening up my trading world. I understood my mental, emotional, and philosophical approach to trading had to change, and I needed a strategy. With renewed energy, I turned back to VantagePoint, and, over the next two months, I developed and implemented a philosophical mindset and a VantagePoint oriented strategy that turned my trading around. I transitioned from a random, tentative trader with little positive to show to a trader consistently posting more wins than losses. Not only did I have a new, successful approach, but creativity and intuition, the sole basis of my previous approach, transformed from a negative to a positive. In fact, these two important aspects have found a place in my now well-ordered trading world. However, before we visit that place, I want to walk you through the development of a personal trading philosophy and a VantagePoint trading strategy. I hope this small trek helps you see how to combine a mindset and trading strategy with VantagePoint to increase your probability of success.
This excerpt gives you a picture of me as a VantagePoint trader, which is the point of this column. As well, though, it also provides something far more important for you as a trader – the foundation of what I believe is the structure for success. The last sentence of the excerpt delineates that foundation. That same sentence also lines me up for my next two columns, which will look at developing the right mindset for trading and developing a trading strategy that will increase your probability for success.
I consistently argue that you cannot be successful with VantagePoint, or any other trading approach, without commanding your mind and mastering your emotions, which is the essence of the “right” trading mindset, and developing a trading strategy that allows you to trade with confidence. If you do these two things in earnest, well, in my experience, the work you do will pay quite the nice dividend.
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.
Crude Oil Futures Remain in Downtrend
by Jim Wyckoff
October crude oil futures at the New York Mercantile Exchange have experienced higher volatility on the upside and the downside recently. However, prices are still hovering near the multi-month low of $111.50 scored last week.
As the VantagePoint chart illustrates, crude oil prices are still in a six-week-old downtrend from the July 11 contract and all-time high of $148.13 a barrel, basis October futures.
Crude oil traders will continue to keep one eye on the value of the U.S. dollar versus the other major currencies of the world. The stronger greenback recently has been a major bearish fundamental factor for the liquid energy markets as well as for many other commodities. Any further appreciation of the dollar will likely mean further deterioration in crude oil futures prices, including the potential for prices to drop below major psychological support at $100 a barrel.
The next upside technical objective for crude oil market bulls is to push and close October futures above solid chart resistance at last week's high of $122.04. The bears would gain better near-term downside technical momentum by pushing and closing October crude oil below solid chart support at the August low of $111.50.
Neural Index bearish
From an important "intermarket" perspective, VantagePoint Intermarket Analysis Software (www.TraderTech.com) is presently providing bearish near-term signals for October crude oil futures. VantagePoint's Predicted Neural Index is presently reading 0.00, suggesting more downside price pressure in the near term.
VantagePoint is a valuable trading tool from which a trader can glean clues on potential near-term price trend changes or continuation of present trends. These near-term clues provided by VantagePoint can and do give a trader a key edge.
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. When the predicted simple three-day moving average value of typical prices is less than today’s actual three-day moving average value, the Predicted Neural Index is 0.00, indicating the market is expected to move lower over the next two days.
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.
MACD also bearish
Note also that VantagePoint’s Predicted Moving Average Convergence Divergence (PMACD) indicator for October crude oil futures is also in a bearish mode as the black PMACD line and the blue MACD Trigger line are both below the horizontal zero line of the indicator. In recent months when the crude oil market was rallying to new highs, both lines were above the zero line of the PMACD. When both lines crossed below the zero line in July, the crude oil market began a downtrend. One early clue that the downtrend in crude oil might be ending is for the PMACD line and the trigger line to cross back above the zero line.
PMACD predicts the MACD one day ahead. MACD is a trend-following momentum indicator calculated by subtracting a 20-day exponential moving average from a 10-day exponential moving average. MACD Trigger predicts the MACD trigger one day ahead. The MACD trigger is calculated as a 9-day exponential moving average of the MACD.
When the PMACD line crosses below the Trigger line, this predicts a possible reversal of the current uptrend to a new downtrend. When the PMACD line crosses above the Trigger line, this predicts a possible reversal of the current downtrend to a new uptrend. Another crossover indicator occurs when the PMACD crosses above or below the zero line.
PMACD can also be used as an overbought/oversold detector when it pulls away from the Trigger, suggesting the price of the market may be due for a correction that will bring the averages back together. PMACD can also be used to spot underlying strength or weakness when its movement diverges from the movement of prices.
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.
What to do when there is nothing to do
