Thursday, October 13, 2011

Weekly Trading Update (October 14, 2011)

“If you are expecting the market to rise, the risk is relatively small and you are seeking substantial long-term wins. If you are expecting the market to fall, then you would have to wait until you actually see it falling… The true trend of the market is found in the longer-term charts. I have always felt that the big money is made by finding the time frame in which you can see and trade the trend. Sometimes it is as small a time frame as a 15-minute chart, perhaps even less. But at other times, it requires stepping up to the very largest time frames.” – Joe Ross


Nicolas Darvas was one of the past market wizards (thanks to Mr. Ralf Kraemer for shedding more light on Darvas’ trading method). Though, he embarked on a multi-year world tour, he maintained constant communication with his broker. He understood the nature of the market. To him, the market behavior was compared to that of a dancer who’d first squat before getting ready for a jump. This means that some consolidation would be in place after a price jump; something that makes the market ready to jump to the next higher target. There was a time when the market fell heavily and affected many players seriously, but Darvas was able to keep his fortune largely intact, thru rigorous risk management in the form of stop orders. According to him, it’s totally bad for traders – or more appropriately, gamblers – to stick to their losing positions although prices keep moving more and more against them, while hoping that the prices would turn and go back to their entry levels. It’s true that the dream of the future is what people find gripping, not reality.

Can you learn any lesson from this?

Below is the summary of some of my trading activities this week.


Primary Trend: Bearish

There’s a clear violation of the current trend outlook. Since hitting a major support level at 0.9380, the price has been going up. It has gone up by over 850 pips – a good example of the benefit of trend following, even in a difficult market.


Primary trend: Bullish

From the support level at 0.7460, this pair has gone up by over 500 pips, but the threat to the bearish outlook isn’t that serious. I was able to gather 100 pips from this move. If the present bullish conditions remain longer, the NZDUSD graph may become asymptotic.


Primary trend: Bullish

Since the last ‘buy’ signal was generated by the system I use for these analyses, this cross has moved up by over 250 – slowly but steadily. Only a significant weakness in the Aussie would reverse the current trend.


Primary trend: Bullish

Although the current outlook in this market remains bullish, one would’ve been stopped out a couple of times if one had entered at wrong levels. The price is very slow in action, and it takes much experience to know the exact thing to do when the price is cheap and when it’s expensive.


Primary trend: Bullish

This market is currently flat, though still bullish. The SMA 50 is above the SMA 200 while the price is slightly below the former. The ADX 20 has continually found it difficult to rise vividly above the level 20. Even -DI remains above +DI. It’s still not prudent to assume any position in this market right now.


Primary trend: Bullish

The volatility on this cross is very high at the moment. There’s been some bearish correction this week. It first became predictable before going haywire. The problem came when the price churned above and below the volatility line. Traders were then unmercifully whipsawed regardless of which time frame they used.

Conclusion: Some people have developed hatred for trading, thinking that there are many other types of risklesss business. There’s no business without risk. The only problem is that almost 99% of traders hate the principles that can keep their money safe. If we do the right things, trading would simply be like any other types of business.

The article is concluded by some explanation from Sam Seiden:

Not long ago, I was spending time with a friend of mine who I have been close with since we were children. For years, anytime my career comes up in conversation, he insists that trading is nothing more than gambling. I actually get this question from others at trading events as well. It is a very hard question for me to answer because I think the whole question is wrong. Whether you are a trader, gambler in a casino, Pepsi buying advertising space on a network, retail store owner, casino, car dealer, franchise owner, street vender, someone who buys and sells things on eBay, and so on, YOU ARE A SPECULATOR at some level. The trader takes on risk in a market for a potential reward. The gambler risks a $5.00 chip on the black jack table to try and make $10.00. Pepsi pays $1,000,000 (risk) for a commercial spot during the Super Bowl hoping to see a return (reward) on that investment much greater than the cost (risk) of the commercial. The retail store owner buys inventory (risk) in hopes of selling that inventory to you and I at a much higher price (reward). I think you get the point. If you think of it this way, the real question becomes: "What type of speculator are you?"’

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC


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NB: There is risk of loss in trading, but it is possible to be a successful trader.

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