There are a number of ways to exit a trade. We can use the Predicted Next Day High or Low, we can get stopped out, we can use the crossovers . . . In this article, I am going to talk about using the short-term and medium-term crossovers as a means to exit a trade.
The following examples assume that we enter our trades using my 1-2-3 system and the medium-term crossover. Let’s start by looking at July 2007 wheat futures.
I just love this trade. Why? Because it is a case where VantagePoint almost called the absolute bottom of the commodity but also gave us a nice heads up for a huge move. As you can see, we got our entry signal at the end of the day on May 25, 2007. We had a long weekend to look at the news and think about the effect of droughts in Australia and Europe and that wheat was indeed in short supply.
I went long on the electronic market on the open for May 29 and was filled at 499.2. Notice that I am using the medium-term crossover to enter.
This was a very nice trade until we got caught in a trading/consolidation range starting on June 19, 2007. If we only had the data of June 19 and before then to consider, it would be impossible to see that we were in a consolidation range. However, a technician’s look at the chart would show you that wheat had been in a trading range before.
That isn’t unusual for a commodity that makes a big move. Usually there is a time where the market breathes and digests the news and information that caused the big move.
Nice information, you say. But, how does that help me? Trading ranges can be confusing, even for experienced traders. I think it is hard to set stops when a market is in a trading range. I don’t want to get stopped out if the market is just taking a breather. And I don’t want to lose money if it isn’t and is going to reverse trend.
What is a trader to do? How about changing the crossover time frame to get a different view of what the market is doing.
Here is the very same wheat chart, but with the short-term crossover instead of the medium-term crossover. I have some great data that I can use to my advantage just by switching time frames.
On June 19, 2007, the short-term crossover goes negative (predicted EMA below actual SMA). That tells me that, in the short term, the trend has changed. Now, granted, we don’t know if we are in a trading range or if the trend has changed for good based on the data up until that point. Really, we don’t care. We just know we have a chance to exit the next day with a profit. I exited the trade on June 20, 2007, electronic market on open.
Looking ahead, we can see that we were in a trading range until around August 8 and the July wheat futures contract had rolled to the September contract. We had the chance to go long again on August 21, 2007. And we begin the trend and trade all over again.
There are many ways to exit a trade. I like this one because it gives me clear data on trend. Predicted Next Day High and Low are great, but they are data that don’t really tell us where the trend is headed. Hopefully, this new way to exit will expand the way you use VantagePoint.
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.
Hog Fundamentals Seem Faulty
But VantagePoint Spots the Trend Early
by Darrell Jobman, Editor-in-Chief, TradingEducation.com, LLC
My last newsletter article emphasized the role of intermarket analysis and VantagePoint in a Synergistic Market Analysis approach, illustrating how the supply and price of one commodity (corn) affects the supply and price of another (cattle). We’ll stick with that theme again in this article, but this time we’ll look at hog futures in a synergistic approach that combines fundamental analysis, traditional technical analysis and intermarket analysis.
As it is with cattle, corn is also a key component in hog production and pricing. We covered some of the main corn fundamentals in the previous article so we won’t go into detail about the effect that spring rains, delayed planting and ethanol demand have had on corn except to note that record corn prices should be a deterrent to hog production just as they should contribute to reducing the size of the cattle herd.
However, illogical as it may seem, the U.S. Department of Agriculture quarterly Hogs and Pigs report released on Friday, June 27, showed the total U.S. hog inventory up 6 percent from June 1, 2007, and up 1 percent from March 1, 2008. The report also indicated the March-May pig crop was 4 percent higher than in 2007 and 9 percent higher than in 2006.
Just as the June 30 planted acreage report indicated that U.S. farmers had planted a million more acres of corn than they intended in the March report despite the major rain and flood problems over a wide area of the Midwest this spring, the increase in hog numbers makes absolutely no sense economically and makes one wonder how USDA comes up with its statistics. Are they valid estimates or are they numbers to dampen escalating commodity prices, as one might suspect about the Consumer Price Index and other economic figures?
At this point, it makes no difference. The numbers are what the market has to work with currently, and traders have to deal with them. Agree with them or not, they are the known fundamentals at this time.
So let’s go to the charts to see if we can’t come up with a better means of analyzing the hog market. First, we’ll look at a longer-term chart for December hog futures and apply some traditional technical analysis.
On June 20 the indicators were pointing up as December hogs rallied to test the early February high above $79 cwt. As technical analysts realize, any time a market approaches a previous high, it can run into strong resistance, and traders need to be alert for a reversal or at least a short-term pullback.
When December hog prices did decline in the last week of June and the indicators all began to point down, the question was whether they would bounce off support at the late April and late May lows around $73 or would slide through those levels. These key chart tests are where traders’ skills earn – or lose – their pay so it’s time to take a closer look at what the VantagePoint indicators suggest.
The vertical green line on the two-month chart of December hog futures marks June 24, and the alignment of VantagePoint indicators has turned decidedly bearish:
1. The predicted medium-term exponential moving average (blue line) has turned down although it has not yet penetrated the actual medium-term moving average (black line).
2. The predicted medium-term difference (green line in middle panel) and the predicted long-term difference (red line in middle panel) have turned lower although still not below the zero line.
3. The predicted neural index has changed from 1.00 to 0.00.
4. After not being very helpful during the June uptrend, predicted stochastics has dropped from above the 80 threshold and below the trigger line.
All of these signs suggest going short hog futures. But whether you would act on these indicators depends on your inclination to accept risk. You know there is a quarterly Hogs and Pigs report coming up in just a couple of days, and you know those reports in the past have brought some surprises and dramatic price changes. Should you wait for the report? Or should you have confidence in your indicators? And if so, when and where should you sell?
Going with the indicators, you know you want to be short. You could sell when prices drop below the June 19 low around $76, on the open on June 25 around $77 after seeing the bearish June 24 indicator alignment, on the penetration of the actual moving average on June 25 or 26 around $76 – you have a number of choices, depending on your trading style.
Or you could burrow down a little further, using VantagePoint’s predicted next day high for additional clues.
Here is a two-week chart of the same December hog futures contract showing VantagePoint’s predicted next day high (blue line) and predicted next-day low (red line). You are only interested in selling so you will be looking mostly at the predicted next day high, which can be used in several ways for either a position trade or a day trade:
1. Sell as intraday prices reach the vicinity of the predicted next day high. If you plan to hold the position for several days, that can get you into a position near the top of the daily range. If you are nervous about that upcoming Hogs and Pigs report, you can day trade, exiting the position as prices near the predicted next day low or on the close.
2. If you have taken a short position at one of the points mentioned above, you can use the predicted next day high as a place for a buy stop to protect against an adverse move to the upside. VantagePoint gives you a stop point that will probably be different than what most traditional technical methods have.
VantagePoint’s predicted next day high doesn’t always perform as well as shown here on June 26 and June 27, but this is another tool that can be quite helpful for getting into or out of positions.
In this case, December hog futures traders took the fundamental news from the Hogs and Pigs report to be quite bearish. The market not only gapped lower on the open on June 30, the first day of trading after the report, but sliced through the support around $73 shown on the longer-term chart above. According to traditional technical analysis, that makes the April 1 low at $68.10 the next target.
Will that support hold or will December hog futures continue to fall through that level based on bearish fundamentals? No one can be sure, but VantagePoint traders have the advantage of being able to look at a set of unique indicators that will provide the next reliable clues.
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.
Success Breeds Success
by Brandon Jones
Success breeds success. I am convinced this is so. This attitude is consistent with winners in every competitive realm, as far as I can see anyway. Ergot, for one to be successful at something, no matter what that something is, one has to believe they will be successful.
When I say “believe,” I mean that the thought of success has to reside in that unseen core from which all of our subliminal forces of behavior emanate. It is one thing to say, “I believe I will be successful.” It is another thing altogether to say nothing and yet always have this thought at work subliminally.
This may sound a bit esoteric to you and somewhat on the fringe of New-Age thinking, but I can assure you it is not. First, there is 5,000-plus years of anecdotal evidence that indicates this type of thinking has been around for a long time. Second (and I won’t go too far with this), current quantum physics theoretically proposes that we actually can exert unseen influences on our everyday realities. Without putting too fine a point on either of the above supports for my thinking, I would say that perhaps we all should consider the possibility that we actually have more say about how our lives turn out moment to moment than we might know.
If it is true that having the idea of being successful simply reside in our innermost place, then we have to find a way to tap it and use it. If it is not, then this article will serve nicely as fish wrapping (if you printed it out, that is). And this is where VantagePoint comes into play.
Of all the endeavors I have done in my life, from playing sports to business ventures, none has taught me more about myself than trading stock markets. I have been trading stocks for four years, and it has only been the last one or so that has actually produced consistent, positive results. Coincidentally, this positive flow runs in tandem with the length of time I have been using VantagePoint. Hmmm … Is there a connection?
Of course there is, and that connection centers on the fact that when I started to use VantagePoint, I was almost out the door on trading. I had told myself that if I couldn’t make it work with this new software I had just purchased, I was going to toss the idea of trading right out the window and move on to something else. Here is an excerpt from my book that clarifies my thoughts at the time:
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: I would either learn how to do it successfully, or I would give it up. I made that decision in the late winter of 2006.
So here it is. When I bought VantagePoint, I had made a solid commitment to give trading one more effort, and the strength of that effort would be put into VantagePoint. Therefore, I committed … It worked. I am still trading a year later.
Oh, sure, I struggled for a few months trying to figure out what I had and how to make it work for me, but then something happened. I read a book called Trading in the Zone, and the lights came on. Being a successful trader had less to do with the tools one uses and everything to do with one’s trading mindset.
So I began to incorporate this notion into my trading brain. I worked hard on letting my emotion about the trades go. I worked hard on focusing and directing my energy toward trading. I disciplined myself to treat trading seriously, as if it were my business. And I worked hard at learning VantagePoint. No matter if I planned to trade the next day or not, I would run through my portfolios, find and closely examine potential trades, and then define entry and exit points. I built a spreadsheet to help define good trades and bad. I built another to help me find entry and exit points because I was just missing the mark for success. Finally, I built a spreadsheet that tracked my all of my trades, allowing me to treat the business of trading like, well, a business.
After a few months of behaving this way, something extremely positive happened to me. I began to win, and I began to win a lot. Suddenly, the trades that were stopping out were no longer stopping out. The trades that I exited with a little profit changed to hitting profit targets. I began putting consecutive trade wins together. In fact, in one stretch, I went 17-3 in a two-month period.
What happened? The VantagePoint software didn’t change suddenly. It still behaved as it always had. What happened is that my work on the mental and emotional aspects of my trading paid off, and as it began to show positive results, I began to believe (without having to say it consciously) that I actually could be successful at trading.
I came to understand that VantagePoint as a tool is a marvelous piece of work, but, more important than that, there quietly came from that core place in me an unspoken knowing that trusting and giving into the flow of VantagePoint and me would produce positive results in my trading endeavors.
And so I say again, “Success breeds success” . . . if you believe in your core that this is true.
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 Suggests Continued
Upside for Bond Futures
by Jim Wyckoff
September U.S. Treasury bond futures have made a solid price rebound from the June low of 111 23/32 as price action this week has produced a seven-week high and also negated a longer-term downtrend line drawn from the March, April and May highs.
As a result, bond market bulls have gotten fresh upside technical momentum on their side and are looking for more on the upside in the near term. The next upside technical objective for T-bond bulls is a close above solid technical resistance at the May high of 116 26/32. The next downside price objective for the bears is a close below solid technical support at 114 even.
Bond market traders also need to continue to monitor the value of the U.S. dollar versus the other major currencies of the world. Any significant dollar strength would be a bullish factor for the U.S. Treasuries market.
Using VantagePoint Intermarket Analysis Software (www.TraderTech.com), it appears that September Treasury bond futures are poised for more price gains in the near term as the present uptrend continues. The VantagePoint daily bar chart for September bond futures shows that the Predicted Relative Strength Index (PRSI) has just moved below 70.00, which does suggest the market will soon move out of its short-term overbought condition and is bullish.
PRSI predicts the 14-day Relative Strength Index (RSI) one day ahead, comparing an average of up closes to an average of down closes for a specified period to predict a market’s strength or weakness. PRSI is plotted on a scale of 0 to 100. Readings above 70 predict an overbought market; readings below 30 predict an oversold market (thresholds indicated by dashed lines on chart). Predictions above 70 or below 30 suggest that the market may be making a top or bottom in the next day.
Also note that the predicted 4-day exponential moving average (EMA) of typical prices two days ahead (P4EMA+2) is above the actual 10-day simple moving average of the close (A10SMA). That's a bullish clue. Both lines are trending higher on the daily chart, which is also bullish. This suggests September T-bonds will continue in a general price uptrend for at least the near term.
VantagePoint’s Predicted Moving Average Convergence Divergence (PMACD) indicator is also in a bullish mode, having recently produced a bullish crossover as the PMACD is above the "trigger" line of the indicator. Both lines are also trending up, which is bullish, too.
Predicted MACD (PMACD) predicts the MACD one day ahead. MACD is a trend-following momentum indicator calculated by subtracting a 20-day EMA from a 10-day EMA. MACD Trigger (Trigger) predicts the MACD trigger one day ahead. The MACD trigger is calculated as a 9-day EMA of the MACD.
When the Predicted MACD line crosses below the Trigger line, this predicts a possible reversal of the current uptrend to a new downtrend. When the Predicted MACD 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 Predicted MACD crosses above or below the zero line.
Predicted MACD 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. Predicted MACD 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.
Australia ETF Good Choice
For Commodities Boom
by H.U.
Part II
I am sure the last few weeks – it has seemed like forever – has brought on a lot of gritting of teeth and testing of patience for U.S. stock market traders, but it is during these tough times that a patient and opportunistic investor will be rewarded.
No one knows exactly how long the bearish phase of the market will last – most investors hope it will end very soon – but using VantagePoint indicators will help to indicate when an entry into the market will, in time, allow your investment to become profitable.
That is why the Australia exchange-traded fund (stock ticker: EWA) is recommended as an investment. Australia is politically stable and has a strong economy due to its abundance in natural resources that have benefited from the rising commodities’ prices over the past few years. With the growth of the rest of the world, the demand for energy sources and resources to build infrastructure will not end any time soon. In volatile stock markets it is important to invest in fundamentally strong trends that will last for years to come.
I love VantagePoint because I believe charts give out so much information, and VantagePoint indicators actually predict what will happen to stocks such as EWA over the next few days.
Look at the six-month VantagePoint chart of the Dow Jones Industrial Average (DJIA) below. The downward sloping actual 15-day simple moving average line of the DJIA close is below the predicted 6-day exponential moving average line of typical prices for the DJIA, confirming that the market is currently experiencing a bearish phase (see arrow).
The Predicted Neural Index is at 0.00 and the Predicted Long-Term Difference line is sloping downward. Additionally, the Predicted Stochastic line is below its trigger and downward sloping; the Predicted MACD line is below its trigger and downward sloping; and the Predicted Relative Strength Index is also downward sloping (see arrows). All of these indicators are confirming that the market is in a bearish state.
However, there is a strong probability now for a rebound in the DJIA when you compare the current DJIA reading to a previous low point on January 22. A little more than five months ago, VantagePoint’s Predicted Neural Index was at 0.00 the day before January 22, and the Predicted Stochastic, Predicted MACD and Predicted RSI were all at around the same level as those indicators are now, and they all recovered on and after January 22. So there is a strong possibility that the same type of rebound in the DJIA may occur soon.
The Predicted Stochastic is now at 9.90, which is far below the threshold of 20; the Predicted MACD is now at –227, which is far below the threshold of 0, and the Predicted RSI is currently at 11.47, which is far below the threshold of 30. With all of these indicators below their corresponding thresholds, the market is showing strong signs of being oversold. When these indicators were this low previously, the market rebounded on January 22 so a similar event could occur soon in the stock market.
It is interesting to note on the 1-month VantagePoint chart of the Australia ETF that there are signs of positive convergence, which may indicate a possible change in trend in the EWA chart. Even though the blue line (predicted 6-day EMA) is still below the black line (actual 15-day SMA close), the blue line is coming very close to the black line, which may foretell a probable crossover, and the blue line is sloping downwards at a less vertical angle (i.e., falling at a slower rate than during the previous few weeks).
The Predicted Stochastic and the Predicted RSI have stabilized at their lower thresholds of 20 and 30 respectively (instead of falling) and offering signs of positive convergence. The Predicted Long-Term Difference line is sloping upwards and towards the Predicted Short-Term Difference line, and the Predicted MACD (black line) is higher than its trigger (blue line) and is sloping upwards.
All of these signs seem to indicate a very probable change in trend in the EWA.
The Australian economy is a prosperous, market economy that is comprised mainly of services, which account for 68% of gross domestic product (GDP) and the agricultural and mining sectors, which account for around 8% of GDP combined. They account for the majority (65%) of Australia’s exports.
Australia is blessed with an abundance of natural resources, which has led to its being a major exporter of agricultural goods, including grains and wool, and mining products such as metals, coal and natural gas. Australia is similar in size to the United States but has a labor force of only about ten million people, which is less than that of New York City. Service sectors in Australia have grown in recent decades, displacing the manufacturing sector, which now accounts for just under 12% of GDP.
Australia has continuously focused on reforms, which have contributed to the long-term strength of the economy. In the 1980s, the Australian Labor Party, led by then Prime Minister Bob Hawke and then Treasurer Paul Keating, began modernizing the Australian economy by floating the Australian dollar in 1983, which also led to full financial deregulation.
Some economists have voiced concern about Australia's large current account deficit, the increasingly depleting manufacturing industry, a real estate bubble and the related unaffordable housing for young people, high levels of net foreign debt owed by the private sector and strong import growth.
From around the 1950s, Australian trade has shifted definitively away from Europe and North America to Japan, China, India and other East Asian markets.
The Australian economy has performed (nominally) better than other economies of the OECD and has supported economic growth for 17 consecutive years. According to the Reserve Bank of Australia, the Australian per capita GDP growth is higher than that of New Zealand, United States, Canada and The Netherlands. The performance of the Australian economy is heavily dependent on continued strength of its trade partners such as the United States, China, India and other Southeast Asian economies.
Because 20% of the largest 100 publicly listed companies on the Australian Stock Exchange (by market capitalization) belong to the mining industry and because the mining sector accounts for 60% of Australian exports, we will look next at the mining industry.
Australian Minerals Industry
Recent Developments
There are two major political parties in Australia: the Australian Labor Party and the coalition that consists of the Liberal Party and its minor partner, the National Party. The Parliament also includes Independent members, and members of a few minor parties, such as the Greens and the Australian Democrats, mainly in upper houses.
Since the December 3, 2007, Australian election, the Labor Party led by Prime Minister Kevin Rudd has been in power in Canberra, and the party is now in power in every parliament in the country at the federal and state levels. Rudd is fluent in Mandarin and seeks to continue to strengthen Australia’s economy through its relations with its major trading partners such as China, India and the United States. His other policy goals include lowering individual and business taxes, reducing Australia’s carbon emissions, improving Australia’s health system and improving housing affordability.
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.
Finding the Exit
Success Breeds Success
VantagePoint Suggests Continued
Upside for Bond Futures 
Australia ETF Good Choice
For Commodities Boom 
