US Dollar

US dollar is about to finish an expanded flat correction and will begin a new up leg from here.  Expect market to behave reversely…

 

 

05/31/2009 weekend summary

Here I would post a few possible scenarios for the coming weeks.

 

 

The 1st one has been my primary count for quite some time and I won’t change my mind until the previous high is taken out.  So next week is really critical in judging the big picture to me.  We need to be flexible in the market, but we need to have principle as well.  When many signals conflict with each other, there is something you need to stick to.  

 

 

 

If my picture is clear, there is a very high chance we fall from here directly.  After revisiting last session’s peak in Friday, it really looks like a short squeeze to me.  Many stop orders are set @ key pivot point 912 and a sharp popup triggered all these orders…   There is another possibility that we have having a diagonal consolidation here and that take another one week or two hanging in the 890-930 zone.  I will update the chart once that one plays chart.  Usually diagonal consolidation occurs @ wave 4, but in wave 2, it indeed happens in rare cases.

 

 

A bullish count is listed below.  Again the previous high is the key to watch to validate this scenario.  There are some key levels to watch if this scenario plays out and i will update them when this happens.  I give a 10% possibility to the upward breakout. :)

 

 

I will not update more charts.  there are already tons of bullish chart online there, like “XLF breaks out!” and “200MA coming”…  Have the big picture clear and make the trade when set up is there.

Five Fatal Flaws of Trading

by Elliott Wave International's senior instructors Jeffrey Kennedy

 

Why Do Traders Lose?

 

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.
Which brings us to the question: Why do traders lose? Or maybe we should ask, 'How do you stop the Hand?' Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

 

 

Fatal Flaw No. 1 – Lack of Methodology
If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.
How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn’t matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint I can give you regarding developing a defined trading methodology is this: If you can’t fit it on the back of a business card, it’s probably too complicated.

 

 

Fatal Flaw No. 2 – Lack of Discipline
When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

 

 

Fatal Flaw No. 3 – Unrealistic Expectations
Between you and me, nothing makes me angrier than those commercials that say something like, "...$5,000 properly positioned in Natural Gas can give you returns of over $40,000..." Advertisements like this are a disservice to the financial industry as a whole and end up costing uneducated investors a lot more than $5,000. In addition, they help to create the third fatal flaw: Unrealistic Expectations.
Yes, it is possible to experience above-average returns trading your own account. However, it’s difficult to do it without taking on above-average risk. So what is a realistic return to shoot for in your first year as a trader – 50%, 100%, 200%? Whoa, let’s rein in those unrealistic expectations. In my opinion, the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year. If you can manage that, then in year two, try to beat the Dow or the S&P. These goals may not be flashy but they are realistic, and if you can learn to live with them – and achieve them – you will fend off the Hand.

 

 

Fatal Flaw No. 4 – Lack of Patience
The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.
That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.
All too often, because trading is inherently exciting (and anything involving money usually is exciting), it’s easy to feel like you’re missing the party if you don’t trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.
How do you overcome this lack of patience? The advice I have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don’t worry about missing an opportunity today, because there will be another one tomorrow, next week and next month ... I promise.
I remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: 'Aim small, miss small.' I offer the same advice in this new context. To aim small requires patience. So be patient, and you’ll miss small."

 

 

Fatal Flaw No. 5 – Lack of Money Management
The final fatal flaw to overcome as a trader is a Lack of Money Management, and this topic deserves more than just a few paragraphs, because money management encompasses risk/reward analysis, probability of success and failure, protective stops and so much more. Even so, I would like to address the subject of money management with a focus on risk as a function of portfolio size.
Now the big boys (i.e., the professional traders) tend to limit their risk on any given position to 1% - 3% of their portfolio. If we apply this rule to ourselves, then for every $5,000 we have in our trading account, we can risk only $50-$150 on any given trade. Stocks might be a little different, but a $50 stop in Corn, which is one point, is simply too tight a stop, especially when the 10-day average trading range in Corn recently has been more than 10 points. A more plausible stop might be five points or 10, in which case, depending on what percentage of your total portfolio you want to risk, you would need an account size between $15,000 and $50,000.
Simply put, I believe that many traders begin to trade either under-funded or without sufficient capital in their trading account to trade the markets they choose to trade. And that doesn’t even address the size that they trade (i.e., multiple contracts).
To overcome this fatal flaw, let me expand on the logic from the 'aim small, miss small' movie line. If you have a small trading account, then trade small. You can accomplish this by trading fewer contracts, or trading e-mini contracts or even stocks. Bottom line, on your way to becoming a consistently successful trader, you must realize that one key is longevity. If your risk on any given position is relatively small, then you can weather the rough spots. Conversely, if you risk 25% of your portfolio on each trade, after four consecutive losers, you’re out all together.
Break the Hand’s Grip

 

Trading successfully is not easy. It’s hard work ... damn hard. And if anyone leads you to believe otherwise, run the other way, and fast. But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless. To get to that point, though, you must first break the fingers of the Hand that is holding you back and stealing money from your trading account. I can guarantee that if you attend to the five fatal flaws I’ve outlined, you won’t be caught red-handed stealing from your own account.

5/29 intraday update

6:10pm

Just come back see the last half hour spike in the market.  need to consider the count for the market and see if my current view still hold.  At least my last post is right, the upward move is impulsive and market has quite some strength…

 

3:23pm

I remain on the bearish side, but there is on thing I can not explain.  the upward move is really impulsive.  is this hint the uptrend is not done yet??? 

 

 

3:09pm

The count just now is invalid.  Wave 4 should not step into wave 1 in a impulse wave.  need to rethink about it…

 

 

3:01pm

If you wanna a clearer path, here you go.

 

 

 

2:52pm

1min chart

 

2:37pm

cheers, bears…  the pink line below is a another support before a bigger celebration…

 

 

2:35pm

oooops.  anyone considering buying house now?

 

 

2:04pm

Today’s market is boring.  no direction is given… both bears and bulls feel frustrated i guess…  even a huge white candle will excite me up…

 

1:51pm

Transport has a nice break out the range bound today.  Another sector I consider long. 

 

This should be a big concern for bears: transport lead dow; dow lead the market……

 

 

1:11pm

Commodity and Transport are strong; financials are weak.  When such divergence happens before, financials lead the market.  now you see SPX still in green because the percentage of financials in the SPX portfolio decreased a lot in the past two years.  a chart for your reference. the area counts for percentage

 

 

 

 

1:00pm

Market at critical junction.  traded between 50 and 200ma.  sitting on the trendline while below VWAP.  could be big move in either direction.

 

 

 

11:58am

The Oil break out, look at the highlighted area. 70 is the limit? 

 

The SPY will be heading lower from here.

 

YGE

YGE is added to the trading blog last week.  now more than 20% gain in the pocket.

As I posted last week, solar ETF TAN is break out.  If there is any sector I want to go long, it will be solar…

 

SPX monthly

Tomorrow is the trading day of May.  Very likely we have going to have three white bars in a roll.  Sell in May and go away… so tomorrow is the last day.

 

Wave 4 commonly retraces 23.6-38.2% of wave 3, just for your reference.

 

 

05/28/2009

4:04pm

Market closed with SPX gaining 1.5% with financials and energies leading the rally.   The coin is wrong today and it says tomorrow is down

SPX has no two up days in a row in May, let’s see tomorrow.

 

my take on tomorrow: gap down, fill the gap then head down; close at day low.  yeah, agree, this is bear biased :)

 

3:13pm

my favorite top pattern:  diamond top

 

 

3:08pm

Yield is fading now and investors are gaining confidence in the new bond issuing. 

 

 

2:30pm

Reverse head & shoulder pattern on SPX?  If that’s the case, we may visit yesterday’s high.   Midterm view unchanged, if that happens, I will take it as a chance to add positions.

 

1:48pm

Energy sector is strong.  Oil, based on the measured move, will be the last pop.  I doubt it will move much higher from here. 

 

 

 

1:31pm

A minor A-B-C correction is done.  market will fall from here.  yield is still high.

 

 

1:14pm

Ten year treasury yield is still souring up.  today is another good chance to add short position.

Bond yield

Treasury yield will be the key topic in the coming days.   The Treasury yield curve has literally never been as steep as it is today (275 bps between the 2- and 10-year notes).  

 

Some have suggested that the magnitude of movement is due to convexity selling in the mortgage market.  Even if this explains the recent declines, it does not detract from the fact that - absent the Federal Reserve stepping up its purchases of Treasuries or another panic - the Treasury will be issuing record amounts of debt and investors are likely to be increasingly concerned about the nation's deficit and the potential for inflation.

 

 

The sharp increase in 10 year note has a dramatic impact on the mortgage rate as I mentioned in weekend review.  I would believe we have a long way to go in the house market recovering…

 

With the 7-year note issuing tomorrow, i guess we would see more pop  up in the notes yield.

05/27/2009 intraday update

5:00pm

Market closed in red and my coin predict tomorrow is down, again.  You may feel bored about it since it’s been saying down for 7 days in a roll.  i don’t know how to cheer you up.  maybe i will ask it to change the tune on Friday.

 

 

2:53pm

The match is on now.  I just take a quick look at the market and find a short opp.

 

 

 

2:30pm

For soccer fans, turn your to ESPN, its Manchester United vs Barcelona!  The market is still under my expectation right now.  will leave it rolling on.  midterm view unchanged ( a chart from yesterday)

 

 

 

 

2:02pm

everyone is trying to find the reason for the sudden move on CNBC.  One guy attribute this to the spike in note yield…  the market has its own internal force and nature law.  people chasing on news are doomed to lag behind in timing.

 

1:42pm

wow, i get some good luck today :)  check where my call was ten minutes ago.

 

 

 

 

1:30pm

Good entry for short now to me

 

 

12:52pm

people are talking about high yield impact on CNBC.  I’ve touched the topic a little in weekend review how high yields may impact the market and economy.  Now we indeed see a nice break out in 10 year notes. 

 

 

 

12:33pm

Dow already breaks down the wedge, i expect SPX to follow.

 

 

12:10pm

A very boring day till now.  Good news for bulls are that 5mins 50MA is holding very well.  Good news for bear is that bear wedge is forming with divergence printed.  Let’s wait and see.  no good trade setup to me now.

 

Top ten

 

http://heyben.com/pickone/top10/

 

i am glad to see “money” or “power” are not here~~~

My count

Have fun with it.  Do not trade on it.   The chart goes wrong theoretically when the high on last Thursday is take out.

 

 

Another version of RH&S

Just list another possibility though i have little faith in it.  If the pullback we have in the past two weeks is treated as the right shoulder, then we have a very unsymmetrical reverse head and shoulder pattern in formation here.  Who said two shoulders have to be symmetrical?  My left shoulder is indeed higher than my right ones.  But not in the way like this……

 

 

If market take out the high on May 7th, I will reconsider the whole picture.  To me, the chance of that happening is very small.  Again, if you can not beat them, join them. 

 

 

5/26 intraday update

4:50pm

market close with very low CPC and CPCE.  Tomorrow will not be a happy day for bulls based on statistics.

Coin say tomorrow is down again.  ha, it’s been predicting down for a while, since both sides are down!  :)

 

 

2:29pm

I will not change my view till the previous high is taken out.   It’s a bear flag on 5mins charts to me with big negative divergence.

 

 

2:10pm

Market is strong.  But one day does not change a trend.  i think it’s a good short entry position at current 911 level.

05/25 weekend review

Review summary: next week down

I hope you guys were having a wonderful long weekend and now are ready for a new trading week.   I reviewed many charts this afternoon and would like to share with you a few interesting ones.  I sense that market is going to fall hard soon, may just start from tomorrow

Midterm top signals are shown up and momentum are heading lower.  Two reversal bars printed on the weekly candles.  You can see such scenarios on many Index. Based on the weekly STO strength, this upward wave is on the same level as the 2008 march-may wave; thus it’s pretty consistent with my labeling that my this is the wave 4 of major wave a.  wave 5 is now underway.  we still have a long way to go, a very long one.

 

 

 

I mentioned in last intraday update that key thing to watch is the close and important level is 20 DMA.  Finally bears, for the 1st time since this rally, has solidly close the last session under the support level.  Momentum has closed at a lower level and I would expect price to follow.  Just follow the chart carefully you will see the momentum is leading the price nicely these days.  This is some old TA, but it still rocks! :)

 

 

 

potential heand & shoulder pattern?  this is a scenario that many traders are talking about, but i keep it as my 2nd choice.  just put it here for your reference.  I seriously doubt if market will join the majority this time.

 

 

 

US Dollar ETF UUP has bleached the mid-term uptrend a few weeks ago and last Friday, it closed right on a key support level.  If the US dollar is going a free fall here, the same thing will happen to the US equities.  Maybe some of you may argue with me that a weak US dollar is good for the commodity sector and benefit the gold/Oil related sectors.   That’s correct.  But, a free-fall US dollar is damaging to the economy and market in many ways.  A most straightforward impact is the tank of investor’s confidence, which will result in outflow of the capital from US equity and bond market.  another consequence is the rise of the interest/mortgage rate to leverage the inflation… housing price further down… bank bad asset further devastating… finance/credit risk… one more round of…

 

 

 

VIX reversal pattern:  VIX finishes a classical three-step reversal pattern last week.  For a $VIX confirmed signal you need 3 things:

 

1. a close outside of the 2.0 Bollinger Band (20 day, SMA (check - happened on Friday)
2. a close back inside the 2.0 Bollinger Band - this issues the signal (check - happened today)
3. a higher close (sell) or lower close (buy) than the close of the day back inside the 2.0 Bollinger Band

 

 

 

Another CPC topping signal for your reference:

 

 

05/22 Intraday update

4:27pm

market closed while in line with my coin’s direction.  I decided to put it on the list since the market is up the whole day when it made call and closed in red in the last 10 minutes. i need to give it some credit.

 

5/26 is updated on the list, coin say it’s down`

 

3:24pm

 

When i say it will play out eventually, i am not expecting it will happen two minutes later… :)

 

 

3:12pm

 

Ooops, i underestimate the bulls.  but this negative divergence will play out eventually.  on minute chart, this seems a bear flag.

 

 

 

 

3:05pm

A good short entry to me @ SPX 895.

 

2:09pm

Many midterm topping signals, since i did not give a summary yesterday, i will write one during the long weekend.  bears get some good entry at the current level.  bulls need to leave now. 

 

 

1:55pm

I was unable to watch the market till now.  Spend most of yesterday’s afternoon driving, from SF to LA.  My coin say today is down also, but i will not update it to the coin watch list this time though since the market already open. 

 

Upward move correction is done to me and we will see more downside rest of today and next week.

05/21 Intraday update

2:38PM

The market will have rebound from here.  Not sure about LOD now.  This down wave can be truncated here.  So bears take some profit if you are daytrading.

 

1:40pm

No surprise from the market yet.  A very weak day and expect market to close @ LOD.

 

1:09pm

Key thing to watch is the close.  We have not close below the 20 day MA ever since this rally as I mentioned in a previous post.  It will be a milestone if bear achieved that.

 

 

12:45pm

Today’s pivot points. 

 

 

 

 

12:21pm

Still remember the trend day play I mentioned about?  If not go to this link:

http://rollinglines.blogspot.com/2009/05/trend-day.html

05/20 market review

Review summary: down tomorrow 

 

Market goes lower on higher volume today.  The edge favors that we will see lower low the next day in the coming days based on this price/volume relationship. 

 

Both SPY daily, both price and RSI retest the broken trendline and then head lower.  One the 20 day moving average is taken out, I believe we are going to see some wafterfalls across the broader market.  Again, my view is that we have the top already on May 8th and midterm trend is down.

 

 

 

Also, I’ve seen so many traders talking about 200ma and the general idea is that at least we will test the line this time before going lower.  So it’s likely truth is against the mass again…     STO already gives the top signal on May 8 as I posted this chart at the time.

 

 

 

Solar ETF, TAN, gives out the buy signal today.  It’s a very nice bottom pattern and can lead to cup & handle break out.  As I mentioned, the energy sector may have different trend with the general market in the coming days and if I go long on something, solar is one of the choices.  I will list the count on USO this weekend.

 

05/20 intraday update

5:31pm

My coin is right again~! :) give it some credit.  it says tomorrow is down.

 

3:08pm

XLF lead the break down.  I believe SPY will follow.

2:26pm

Quite some volatile movement after the FOMC announcement.  Nothing much, some already-priced-in news.

Energy sector and financial sectors are diverged sharply.  I had the idea a few days ago that in the new downside movement, energy and commodities may have its own track and may not be in the same pace with the broader market.  But when we go back to data, when two sectors diverged, financials lead the market!

 

1:45pm

A good short entry point for the day.

 

 

1:28pm

Many reverse ETFs are in a bottoming process.  This morning’s dip leaves a nice double bottom for SRS.

 

1:18pm

Today’s gap was closed 10 minutes ago.  As I said, we have 7 unfilled up gaps since this 666 rally and it’s very hard for the market to hold another gap.  So any gap up is a good short opportunity.  Financials are still weak.  VIX has a nice reverse pattern when it extends out of the BB on daily chart.  A nice reversal for bears.

5/19 market review

Tomorrow: down

 

Financial is weak today and during most of the trading sessions in the day, SPX is in green and XLF in red.  Simply, financials lead the market.

 

Also check the big money flow below:  big money are not pursuing yesterday’s rally at all.  That’s a good explanation for its low volume.  also blue line and red line at getting closer now, bulls be careful.

 

 

                           

ICE

ICE was added to the trading blog week ago. 10 points in a week.

 

 

Intraday wave count 5/19

2:05pm

200ma is taken out on 5min chart.  let’s see how it goes.  btw, my yellow circle still works so far though…

 

12:50pm

It could be premature, but i like this count so far…

 

time will tell.  soon :)

 

 

 

OK, this call is proved to be wrong.  We hit 200MA exactly and rebound.  No more top guessing before we take out 200ma.  

Retest

Where kiss of death happens…

 

 

5/18 market review

My take on tomorrow: down

Despite today’s huge rally, no buy signal on my system yet. Also, the low volume makes the rally very suspicious. The high of the day hit exactly 61.8% retracement of this pullback and this satisfies the wave 2 condition, which usually retrieves most of the wave 1. We might open higher tomorrow but the gap won’t hold if we have any. Now we have too many unfilled gaps since 666.

XLF

I just mentioned it could be a trend day today.  But I am having some short ideas here :)

 

Yellow circle zone will be a good short entry for me.  I think it will have some pullback to 20ema before edging higher.