Trading Tip #3: A Little Lesson in Lingo

#1
The Weekend Commodities Review

Energies

Crude oil has become so closely tied to the global economic outlook that the demand side pressure is seemingly outweighing the supply side premium. That means a strong dollar and weak global demand outlook should push oil prices below $90. Gasoline and heating oil should follow suit while natural gas remains a long term buy with straight calls to capture upside volatility.

Financials

The stock market has developed a downtrending channel after setting a relative high set back on May 2nd. This pattern suggests a move to 1307 on the S&P, although I believe the momentum to the downside should increase rapidly and the channel is likely to fail by a more aggressive bear move over the next couple of weeks. The outlook on the global economy is finally starting to catch up with what I have been discussing for months the recessions bailout-induced pause is over and the global economy is in real trouble. Look past Greece and other European nations. Look beyond the Japanese disaster. Early monetary tightening will make the world cringe, and the reversal in those monetary policies will not only destroy investor confidence but will launch the U.S. dollar back into a bull market. The Fed may not have made all the right moves, but not following the bandwagon by raising rates will likely be viewed as a brilliant contrarian move. Bonds remain bullish amid a stock market decline and flight to quality. The dollar should see choppy price action until we break 80 on the index, afterwhich the long term bull trend will be reestablished. The pound, euro, Canadian and Aussie dollars are all bear plays. I would not chase the dollar higher, but remain long term bullish. The yen should see some gains with the BoJ holding steady on rates, indicating the post tsunami rate cuts are over and the economy is stabilizing. The Japanese yen remains a buy regardless of the dollars next move and I continue to standby my forecast that:

The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Reviewforever.​
Grains

Grains unexpectedly rallied last week amid concerns over continued bad weather in both the main wheat and corn growing regions. Crop progress reports remain critical as we approach the end of planting season for corn. It is possible that grains will receive a temporary boost from funds pulling out of oil that are seeking other commodity investment, but I believe this would be short-lived. Overall I believe supply-side concerns will weasel their way into the picture for one or two week stints, but the demand side of the equation (think global economy, China, U.S. dollar strength) is where I expect the fate of grains in 2011 to be determined. That is also why this pop should end up being a great hedge point for farmers to grab and for specs to develop short plays for the summer season.

Meats

Cattle is clearly in a freefall and the market appears prime for volatility expansion and intensified selling pressure, the likes of which have not been experienced since the Mad Cow collapse. The cattle on feed will likely only help the liquidation event continue. Hogs also broke recent support and remain a sell.



Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Metals

Gold and silver have shown signs of support, but the recent action is likely nothing more than congestion after a strong slide. There is a bit of conflict on a fundamental level as panic out of the euro should pressure gold, but the fear of economic slowdown might help support a brief flight to quality into metals, especially factoring in the recent drop giving relative value to this sector. This is expected to be a blip on the screen of a continued plunge in this sector.

Softs

Coffee broke through key support and is setting the stage for a mega collapse in coming weeks. There is nothing fundamental holding this market up if the global demand outlook declines. The cocoa market is similarly setup to fail after sustaining historically high prices for an extended period and now seeing the combination of Ivory Coast exports hitting the world and a global economic panic. Cottons channeling is likely short-lived and more downside should be expected. OJs momentum increase off trendline support should be viewed as a potential turning point meaning the market jumped off trendline and now as it comes back to test that trendline it could have the momentum to breakdown through that support and fail. Sugars congestion is not entirely unexpected after such a prolonged pullback, but I do believe new lows are fast approaching.
____________________
James Mound
www.MoundReport.com
[email protected]
(888) 744-8866

*Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.
 
#2
TradingTip #10 : How to Determine Where the Real Support and Resistance are Everyday

Understanding support and resistance levels is an extremely important technical skill in any market, and I think it's absolutely critical if you plan on trading the S&P E-Mini market. Professional Floor Traders are aware of an entire range of major and minor support and resistance levels before the market opens each day. They also know how to calculate new levels as the trading day progresses.

Support is the price area for a potential bottom where the market will be buoyed up as buyers come in seeing potential value. Resistance is the price spot where the market just can't seem to move any higher as selling comes in every time it hits that level.

Knowing those points where the market may turn gives you an effective road map to guide you through the day.

Most traders calculate support and resistance levels incorrectly, and to make their job even harder, they generally don't know how to trade around them. Many traders will use an old high or an old low and assume they've found support or resistance. That just doesn't work. Think about it for a moment. If the market always stopped at old highs we could never have an up trending market, and if the market always stopped at old lows we couldn't have a down trending market.

These Are the Same Numbers I (And Other Pro Traders) Use Every Morning

In my training programs I like to focus some attention on the information needed to correctly calculate support and resistance levels before the open each day. These are the same numbers I and many other floor traders utilize each morning. Can you imagine the "edge" this information gives you for planning your possible trades?

Let's face it; all traders likely want to catch the big trending days, days when the S&P moves 15 or 20 points without looking back. Unfortunately those big trending days just don't happen that often. Most days it appears the market doesn't trend very much in either direction, instead it will move between known support and resistance levels.

Knowing the location of these price levels is important, but knowing how to trade around them can be the difference between success and failure.

One of the simplest ways to do technical analysis is by using the pivot points. This method has been around for years and is described below:

A pivot point is approximately the center of today's price range. From there, I calculate three different sets of highs and lows.

These pivots are then potential support and resistance, when prices have gone outside the Value Area.

Pivot Point = (High + Low + Close) /3

#1 high pivot = Pivot Point + (Pivot Point - Low)
#1 low pivot = Pivot Point - (High - Pivot Point)
#2 high pivot = Pivot Point + 2 (Pivot Point - Low)
#2 low pivot = Pivot Point - 2 (High - Pivot Point)
#3 high pivot = High + 2 (Pivot Point - Low)
#3 low pivot = Low - 2 (High - Pivot Point)

This is easy to do by hand every day, after the market closes, so you are ready for the next trading day

Most trading platforms automatically calculate these numbers for your easy retrieval and use. I do not use the pivot number for trading; I only use it to determine the "sets" of pivots. I also do not use the #1 high pivot as support, if the market opens or trades above it. I use them as "envelopes". Let's say the market opens above the #1 high, I'll look at the #1 low for support and the #2 high for resistance.

In my own experience, I have noticed that the #1 pivots work the best over time. If the market gaps over the #1 pivot high, you'll have a #2 and #3 to work with. You can either use limit orders to buy or sell at these pivots and use a money stop, or wait for the pivot to "hold" the market. If the pivot "holds" the market, trade an engulfment, doji-star, tail or whatever you see, which is a more conservative entry.

Did you like this trading tip?

Receive 1 FREE trading tip per week from Larry Levin by clicking: http://www.tradingadvantage.com/Trading-Tip-v1/landingpage.html

Best Trades to you,
__________________________________
Larry Levin
Founder & President- Trading Advantage
[email protected]
888.755.3846
312.235.2572
 
#3
Secret Trading Tip #20 : Understanding Candlestick Patterns - Harami

I've already covered some of the better known patterns like doji (Tip #18) and engulfing (Tip#19) now it's time to add harami to your candlestick chart pattern arsenal. Let's take a look at what this technical signal looks like, and what opportunities might be presenting themselves when you see it.

Harami patterns can be bearish or bullish
Harami, like engulfing patterns, are a two candlestick formation. They are actually often confused with engulfing patterns because they both involve candles where one real body is bigger than the other. The difference is that in harami, the preceding (or first) candle in the pattern is the longer one of the pair; it encompasses the whole body of the second candlestick.

If you see this two candlestick pattern, it could be a sign of a reversal

In a candlestick chart, bullish harami are formed when a long filled (or red) candlestick appears during an established downtrend and is followed by a smaller hollow (or green) candlestick. The reason this is a bullish signal is based on the idea that the first candle forms during a session with potentially high volume and bearish sentiment. The following day, there is a gap higher to open, a smaller trading range, and prices were supported above the previous day's close. This is seen as a potential indication that things are about to turn a bullish reversal.


A bearish harami is made up of a long hollow (or green) candlestick occurring during an established uptrend which is then followed by a smaller filled (or red) candlestick. Similar principles apply to this signal as they did to the bullish version the first day makes way for a smaller range led by a gap lower and selling pressure that kept prices from rising.


It is worth noting that some candlestick chartists suggest harami can include candlesticks of any color combination filled + filled, filled + hollow, and hollow + hollow. The whole point for them is for a larger candlestick to be flanked by a smaller one. The reversal signal is just potentially stronger when the second candle is a different color. The two different candle sizes are just seen as an abrupt and sustained bit of trading contrary to the prevailing trend.

Harami are telling you that there has been a sudden trading shift


This candlestick pattern tends to crop up when there has been an apparent loss of trading momentum. The kanji definition of harami is embryo I take this to mean that the second candlestick is just the early start of a new trading direction, contrary to the existing one. Like most candlestick patterns, it may be wise to look for confirmation of a reversal once you spot harami.

Best Trades to you,
______________________________
Larry Levin
Founder & President- Trading Advantage
[email protected]
888.755.3846
 
#4
Trading Tip #5 : Knowing your way around a chart

For most traders, charts are like their road maps to potential trades. Technicians see potential patterns, key clues that they interpret for trading opportunities. Fundamentalists see confirmation of news stories or supply and demand dynamics playing out in the price fluctuations. Charts are indispensible to traders

Understanding what a chart is telling you is paramount for traders

We are going to look at the two most common chart types, and the basics of their construction. The main thing to understand when you are looking at any given chart is that there is key info that shouldn't change. Each chart will be showing you prices on one axis and time periods on another. Most charts will show the prices on the vertical axis and time periods (e.g. daily, hourly, five minute) on the horizontal one, like this:

Past performance is not necessarily indicative of future results.
Chart courtesy of Gecko Software.

The filler in the middle of the chart is made up of the price bars. Each mark corresponds to a trading period on the bottom and a price range on the right. On this chart, these are the little bars that show the opening price, the high price, the low price, and the closing price.

I tend to favor candlestick charts, which show the same information in a different way.

Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software.

Each candlestick shows the opening price, closing price, session high price, and low price and the color of each candlestick can tell you at a glance if the market closed higher or lower than the open i.e. if it was a down day or an up day.

Whether a bar chart or candlestick chart, people who analyze charts (also known as technical analysis) are looking for clues to potential market direction. For them each new bar or candle can combine with one or several others to form patterns which they believe might forecast future price movements, or at the very least reveal possible trends.

Technical analysis involves looking for possible clues or patterns in charts

There are many different patterns that traders reading charts might be looking for. Some are simply patterns formed by the bars or candlesticks, others are more complex pattern which use other indicators. Let's take a look at some of the most basic:

Sometimes, a chart that is showing a sideways pattern is said to be a in a channel. Every movement higher meets with overhead resistance where selling comes in. Each move lower brings in buyers which creates support.

Candlestick charts also have special patterns that have been identified and named over a long history, said to stretch back to rice traders in Japan. Many of these patterns have fantastic Japanese names like doji or harami. Others have names which describe what is taking place in the pattern like engulfing patterns where the body of one candlestick overtakes the other. These are explored in more advanced Trading Tips.

Recognizing certain patterns or trends can help when planning trades

Technical analysis is one of the backbones for trading strategies. If you can correctly identify a trend, you might be able to spot a trading opportunity. If you can recognize and understand support and resistance, you might be able to use them when planning exit strategies. One of the key things to remember is that the history of a market's price action is no promise of future trading activity. Just because it went to a certain price level before, doesn't necessarily mean prices will move the same way again. Analysis is fallible. Another word of caution for traders - be careful not to let personal bias overrule chart observations. Sometimes we are guilty of seeing patterns to fit our desired forecasts.

Best Trades to you,

Larry Levin
Founder & President- Trading Advantage
[email protected]
 
#5
Trading Tip #11 : Healthy respect for the markets

Markets are powerful things. When you first start trading, you are likely to hear a lot about the risk that comes with the potential opportunities in trading. Don't just pay it a lip-service. It is important that before you risk one dollar, you understand and respect how the markets work and what your responsibilities are.

Understanding the mechanics of risk and reward will help you plan trades


One key thing to remember about futures trading is that you are leveraged in your positions. What is leverage? Well, you are basically able to control (buy or sell) an exponentially greater value of contract with a fraction of the overall price. You use a smaller deposit (margin) as a performance bond to trade a much larger total value.

Leverage can bring big dreams or big nightmares


If each trade is leveraged, then the risks as well as the potential rewards are multiplied accordingly and that means you are on the hook big time. Consider this scenario:

The S&P 500 Index is the most widely used barometer for large-cap U.S. stocks. Day trading is not done using the cash index itself, but instead using a futures contract that closely follows movements in the Index. This futures contract, dubbed the E-mini S&P 500, is listed by CME Group, the largest futures and commodities exchange in the world. Each e-mini S&P contract is worth $50 multiplied by the index futures price. That means when the market is trading at 1275.00 that contract is worth 1275 x $50 or $63,750. So, for instance, if a day trader buys a September E-mini at 1275.00 and then sells it later in the day at 1278.00, then this would result in a profit of $150 (calculated as 3 points x $50 per point), minus fees and commissions. The minimum price fluctuation or "tick" is 0.25 points or $12.50.

Initial Futures Margin is the amount of money that is required to open a buy or sell position on a futures contract. Margin essentially acts as a good faith deposit demonstrating your financial ability to tolerate the risk of the trade - as well as cover any potential losses. Initial Futures Margin for the e-mini S&P is set by the CME Group and is currently $5000 per contract. Add another contract, and you have to have twice the amount on deposit. The good news is that margin for day trading is reduced considerably. You should check with your brokerage to inquire about their day trading margin requirements. Also keep in mind that margin rates are sometimes updated or adjusted according to market volatility.

So for every long or short position you have, a mere $5,000 (or in the case of day trading, considerably less) is enabling you to be in charge of over twelve times that value. Isnt leverage great? Until it isnt. It also means you can lose unlimited amounts of money, far greater values than you have on deposit. That responsibility is constant you can lose money even while a position remains open. Every time your account dips below maintenance margin levels, you have to make an immediate deposit to bring it back up. If margin rates change while you have a position open, you are responsible to add funds to meet that level.

Consider the value per point and you will be able to respect the power of the market

If each point in the e-mini S&P 500 contract represents $50, it only takes 10 points for $500 or 100 point move to that $5,000 level. Some days have smaller trading ranges, or a tighter point spread between the high price and low price. Other days might have extremely volatile trading where 30 points can be given or taken away. 30 points is $1,500 per contract that you would have to celebrate if it is in your favor. It is also the amount you would have to deposit if you needed to bring an account up to margin levels. Trading more than one contract? Two will mean $3,000. Five contracts? You get it now that means a large move in the market will cost you $250 per point. Things add up pretty quickly, and that is why it pays to appreciate and respect what you are getting into with every trade.

Never lose sight of the risks it helps keep you grounded

It is easy to get carried away with the potentially glamorous parts of trading, but it pays to be aware of the real risks for every minute detail of a trade. I recommend planning every trade with these details in mind. I have specific targets for entry as well as profitable or losing exit strategies. Knowing when and where to pull the trigger every time is important whether the market it moving in my favor or against it. It helps me maintain a healthy respect for the power of the market, and keep me from letting my emotions dig me in too deep.

Best Trades to you,

Larry Levin

Founder & President - Trading Advantage
 
#6
Weekend Commodities Review

Energies

Crude oil prices declined as anticipated, but supported out last week right on critical trend line technical support. Look for crude oil to trade through last weeks low to indicate continued near term downside momentum. Gasoline inventories continue to rise and oil inventories are at some of the highest levels seen in years for this time of year. Natural gas remains a long term buy with straight calls to play volatility spikes to the upside while it is recommended to play the short side of oil, RBOB and heating oil.


Past performance is not indicative of future results.

**Chart courtesy of Gecko Software's TracknTrade

Financials

Stocks continue to slide amid global economic concerns and riots in Greece. The dollar should remain strong during this downtrend as investors flee the euro. The pound is likely to strengthen against the euro but weaken against the dollar. The Canadian and Australian dollars are strong shorts, as I believe they have both finished their long term bull cycles. The Japanese yen remains a buy on dips during this period and I continue to standby my forecast that:
The Japanese Yen futures will hit 140 before 80 or I will quit writing the Weekend Commodities Reviewforever.

Grains

Corns massive slide is likely just the beginning of the end for the grain rally. Playing long wheat versus short corn is recommended. Soybeans have held up during this slide, but I suspect beans are susceptible to a significant selloff in coming weeks. Rice remains a sell.

Meats

A strong technical reversal in live cattle was sparked by a spike in cash prices. The cash price jump was attributed to a rise in exports, or at least an expectation for a rise in exports, helping to increase packer margins. I believe this is mostly a technical breakout that forced a short covering rally, offering a potentially volatile market reversal to new lows if the move is capped early this week. Everyone may feel they missed the bottom as the market spikes up, and if traders get caught on a quick reversal to new lows they will likely panic for the exits and create a stronger selloff. The hog rally is expected to stall this week.

Metals

Indias rate hike is another indicator of potential declines in gold demand, however prices continue to remain strong despite gains in the U.S. dollar and declines in key commodity prices. Consider it a delayed reaction. Gold and silver have had a recent history of getting ahead of expected support in the stock market or turns in the U.S. dollar, however they play catch-up when the moves get legs. This week should be critical for establishing the coming bear trend in the metals sector as further declines in the stock market, energies and grains are expected.

Softs

Coffee broke key support and appears ready for a major pullback, furthered by weakening energy prices and concerns over the global demand outlook. Cocoa is in a tight technical channel, needing to break below 2850 on the September contract to regain bear momentum, which is likely to occur this week. Cotton remains a sell. Sugars resilience during this rally is notable, however the accumulation of deep out of the money long term puts is recommended. OJ is a sell with straight puts.

____________________
James Mound
www.MoundReport.com
[email protected]
(888) 744-8866

*Disclaimer: There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. Past Performance is not indicative of future results. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Options do not necessarily move in lock step with the underlying futures movement. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC.
 
#7
The world of trading has many parts that seem a little foreign to new traders. There are plenty of catch phrases, symbols, and other banter that can be intimidating or even confusing at first. One of the biggest sources of confusion includes the shorthand that you see for many markets. Understanding what you are reading is important, and learning the basic lingo can come in handy.

Everything has a specified time and place

All futures contracts (be it for commodities or financial instruments) have very specific parts, quantities, and dates associated with them and thats before you even worry about the price! Not all contracts are created equal. The value of the S&P 500 contract is five times the value of the e-mini S&P 500 contract. Those are two symbols you wouldnt want to confuse! If there are markets you want to trade, visit the exchanges website and learn about the key parts for each contract. These will include:

The contract size

The futures months for the contract

The format for the price quote

The smallest amount by which the price of the contract can move (whole points or fractions of a point, also known as minimum tick)

Any daily trading limits for price movements

Trading symbols for the contract

- And much more!

Gimme an H! Gimme a U!

Memorizing all of this might seem like a bit of overkill, but in modern electronic markets making a mistake can happen in seconds and cost an unlimited amount of loss and confusion. Just remember that fat finger trade and the trouble it caused!

Lets take a look at a contract I trade, the e-mini S&P 500. This futures market trades electronically (hence the e) on the CME Groups Globex platform. On their website, I can go to Contract Specifications and learn that:

The symbol for this market is ES. I can use this code to find price quotes on many tickers.

The contract size is $50 x the e-mini S&P 500 futures price. I can use this value to calculate the dollar risk/gain per point in the market. Basically, if each point is worth $50, a 3 point movement would be $150. If I want to calculate the total dollar value of a single contract, I just have to multiply the current price by $50. If the market is trading at 1,280.00 that means it is worth 1280 x $50 = $64,000.

The minimum price fluctuation is 0.25. That means that if I am making an offer or trying to quote a price, I know that there are quarter point increments so I cant offer a price like 1265.30 in this market. It would have to be 1265.25 or 1265.50.

The contract details also list the trading times so I know when a session begins and ends, and also the trading contract months. This market has contracts for March, June, September and December (the quarterly cycle) these months will be written with their own symbols as well H, M, U, Z. The full list of monthly symbols is:



Each contract will expire at some point, and that date is relative to the contract month.

If you can understand the lingo, you can avoid costly mistakes

Some of this might seem like a no-brainer; after all, a lot of trading programs will give you the info with a single keystroke so you dont have to memorize all of it. The reason I think it is still relevant to know this is because taking the time to learn and understand how the markets work and what the lingo means can save you potential trouble. What happens if you are long ESU11 and you try to close the position by selling ESZ11? Cant do it you would know that the ES U11 is the e-mini S&P 500 for September (U) 2011 and the ES Z11 is the e-mini S&P 500 for December (Z) 2011.


Best Trades to you,

Larry Levin
Founder & President- Trading Advantage
 

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