Trading Insights

Trading Insights

Futures Trading: A cautionary guide

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I came across an interesting search of "Futures Trading" results in the Google search engine today. It's one of those trading articles where I sort of scream at the screen and want to choke the person on the other side of it that wrote the original article.

Look at this quote from tradingfutures.biz:

"...Think about it : if it were possible to devise a system for trading profitably, the owner of that system would become almost infinitely wealthy, and the markets in which he traded would cease to operate as indicators of real value. It's just plain silly to think that there's some way you can varnish your toe-nails while a 'system' gets you rich. If their system worked, it wouldn't be in their interest to sell it. The fact is, successful trading requires sound judgement and always involves some degree of risk.

Examples of pseudo-scientific mumbo-jumbo that is guaranteed to lose you money are :

~ The notion that markets move in waves, whose motion can be scientifically predicted. This is a particularly popular one because "after all, you only have to look at any chart to see that such waves exist". Yes, but try predicting the level of any given wave at any given time and you will find it is as futile an exercise as doing the same thing with real waves on a beach...."

Boy, that sure sounds pretty researched and heart felt, doesn't it?

When writing about stop loss orders, that same author writes * the following regarding their opinion:

"...So yes, you need to have a stop loss order in place, but it needs to be a long, long way from your original position and its triggering should mark the end of your campaign. If you do it right, it will almost certainly never be triggered, to the chagrin of your broker and to your enrichment...."

Right there, I take everything the author has said, ever will say, or is thinking about saying - and I throw it out the nearest window of the tallest building I can run into and climb up.

Why Michael? Isn't he trying to help futures traders?

Why? Because it flies in the face of everything I've ever witnessed since I started getting involved in the trading community over 6 years ago.

I've seen people trade without stops. I've watched them lose the fortunes of friends, families, and church members that trusted them with their futures - the futures of their spouses and their families. When someone says to trade with huge stops - or not use them at all - they lose instant credibility with me. I think it's a criminal statement, after watching the futures traders' lives post account explosion. Go back and ask the guys who didn't have stops on 9/11 what they think of that statement.

Secondly - I've met and seen traders that do nothing but trade systems mechanically - day in and day out. I've developed my own futures trading systems from scratch that traded 1 time a day - that were profitable 94 out of 100 recorded instances. I've shared systems with other people and had other people share their systems with me. The truth is - trading systems and methods are universally accepted as a possible source of income. Read "the New Market Wizards" with Jack Schwager, and you'll see how 18 traders around the world all subscribe to this theory to one extent or another. If you don't start out trading without a methodology - you're doomed to failure. The idea that you come to the market every day, making "judgement" in the moment, is an equally horrifying statement to me. I'd love to introduce the author to a trader that I knew that lost $3,000,000 dollars trading the S&P, with $250,000 profit targets and stop loss orders. Having lost it all, "making judgement" they tried to convince me that they didn't need a system....that they were emotionally "in control". It was frightening to listen to her speak...

Last and not least - the author tries to "debunk" the existence of predictable cycles. I know - from my observation of the real world - futures trading or otherwise,  that time cycles exist. We wake up every day, to a room full of customers - to a trading webinar each week filled with people who were given the prediction times the day before - and ask the question, "was this market predictable, and if so, what percentage of the time?". Week after week - the numbers come back from the feedback chat box in the trading webinar dialog box. "60+%......70%...." or sometimes higher. If these cycles didn't exist, we'd be out of business by now. The trading community would have hung us out to dry on every message board and every trading forum online. We'd have been sued for sure.

Trading, day trading, swing trading....if it's forex, options, futures trading - whatever kind of trading it is - needs to be approached somberly and with great fear and respect for the industry. This is not a country for old men, or women. This requires a level of dedication and commitment to excellence far beyond any other industry I've ever been involved with. To throw up a web page that says the things these guys are saying is pretty outrageous - and it hurts to read it.

I'd love to introduce them to my friend...whose futures trading account got down to $250, and his broker let him trade with margin. His goal was $250 a day, using $250 a day - or 100% returns, daily.

Why would anyone share their futures trading system - or share what they're using to make money? Simple.  You meet a guy like my $250 friend....like the man who lost everything he, and his friends and family ever had - and it changes you. Keeps you centered - and convicts you to help anyone that stops long enough to listen.

* (taken from www.tradingfutures.biz.com)

Timing Indicators

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Timing indicators are a misunderstood class of indicators. If they're in NinjaTrader, or Tradestation, or MetaTrader, they can be easily overlooked because on the surface, timing indicators are not obvious like other lagging indicators used by traders in futures, forex, and the like.

I always tell people, timing indicators don't ask you to forget everything you've ever learned about trading the markets- but rather - they politely ask you to remember everything you've learned about trading the markets and applying that information at certain times each day. Instead of looking at head and shoulders patterns, double tops, double bottoms, or candle reversal patterns every minute of every day - timing indicators allow traders to sit and expect those patterns to recur at certain times of the day - allowing them to conserve emotional energy for the proper times.

What amazes me most about timing indicators, are their apparent disregard for news events, or outside disturbances like econs or reports. For example, look at this 60 minute chart on the Emini Nasdaq:

It's clear to see the cycles, ie the red and green markers, play out in the overall market movements. What scares most new timing cycle traders is how those times were pre-determined a week before those times were arrived at. Despite all the news - all the chaos and calamities - the cycles still kicked in.

The deeper we dig into these cycles, the more we see we have to learn and develop. It's been an amazing journey and I'd be lying if we said we thought we'd found it all. I'm glad to see that timing indicators are important to you - and we're looking forward to showing you what we've found and learned.

The time cycles of the debt limit crisis

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The time cycles of the debt limit crisis, fascinate me. Mainly because the markets - forex - equities, are not supposed to have any order in these environments. The moves are taught to be irradic moves. You shouldn't find any predictive meaningful cycles or patterns in them as it is a herd of people all processing information at the same time, based on the minute by minute digestion and processing of the available trading information.

In short - how could anyone say with any certainty what the markets would do?

The world is too chaotic - one move to the next - one moon cycle to the next.

It's filled with Osama's and Obama's - it's filled with Irans and i-rate extremists. They are all prone to go on TV or YouTube at any point in time and disrupt the natural flow and ebb of the trading universe. There's no way we can say with any certainty that the market will go up or down or sideways a few minutes in advance, let alone a few days in advance, right?

One look at that chart with one short definition puts a huge wrench in our perceptions, though. The definition being that the green dots, the red dot, represented "predictions". Predictions that were a week old. They were saying, seven days before the market ever got to that point in time - "we should go up, now"...."we should go down, now".

After watching this now for 3 years, and working with hundreds of customers that are watching for these same time cycle patterns in their own day trading - I can say with reasonable authority that these cycles exist. People trading 44 tick charts, and 240 charts, are all walking away saying the same thing,

"The markets are not random".

We'll keep watching these longer time cycles. They are great harbinger of turns, and even good filters for identifying trend direction on shorter time frames. There's no telling what else we'll find as we continue to explore the time cycle indicators.

Trading Indicator Balance

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This afternoon I had a conversation with a Pro trader. He is new to trading family here and an already very successful trader in his own right.

But he knew there was a missing component to what he was doing.

We were discussing some of the parameters in his new time cycle indicator. The excitement and exuberance over the newly found freedom, and trading insight is something I never get tired of hearing. Sometimes the smallest things can trigger a thought that can be so profound, if not written down it would almost be a sin. Today this came to mind.

In the conversation something started to become overly clear to me about most day traders.  I guess I really already knew it - and that was the overwhelming majority of them are so unbalanced in their approach to the markets. I say this, because when you get used to having a predictive timing indicator that gives you actual insight into the upcoming market moves, you tend to get somewhat spoiled and see your previous imbalances.

Most day traders give about 95% of their attention to price , and or price based indicators. Is that a bad thing? Not really, and for the majority of day traders it is all they know for many reasons. For example, if I look in my Ninjatrader indicator list, I see about 150 price based trading  indicators  and 4 time based trading  indicators. I have experimented with most of the price indicators over the last several years, and actually use about 3 of them regularly. I have used my Time Cycle trading indicators every day for about the last 3 years, and couldn't trade without them at this point .

How is it that we have become so one sided in our approach to day trading  that we do not consider something as significant as time. I have seen trading indicators that reference everything from yesterdays market price at close, to the position of  the stars and planets. Even entire trading platforms that look like you need a physics degree to decipher, and yet none of them deal with the time cycles of the markets. This seems so unbalanced to me in the light of all the knowledge we day-traders have accumulated over the years.

The power of "time" itself, the one unstoppable force that we must all deal with everyday, like it or not!  So with a force so strong, why has it been so ignored by the vast majority of retail day-traders, and stock traders alike?

Oh,  few guys over the years figured it out, and were very successful with it. Most of them sold only pieces of their knowledge, or were so brilliant that they couldn't effectively communicate what they saw to the average person .Guys like WD Gann, and Welles Wilder were in these categories. I tried to study them some, but it seemed way over my head.

I guess I am spoiled at this point, and I sometimes forget that only a few years ago I was in the darkness too, staring at the charts on the monitor for hours on end, wondering , "is this the right place to get into the market?".  Killing hours looking for the one thing I needed to know the most, the" time" the market  is  expected to turn. For me, that one "time cycle indicator" leveled the field, and it was the same for the new Flux member I talked to this afternoon.

 

It kinda reminds me of the star wars series, the Jedi studied the universe and were always looking for one thing, "Balance in the force". For us Day-traders, we have had hundreds of trading indicators based on price ,but the trading indicator based on" Time"  brings "Balance to the Force", don't miss out on the obvious!

 

Trading Freedom with the Flux

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Have you ever considered why people do the things they do?

I ask folks sometimes why they began day-trading, one typical answer is "freedom"  Do you have the freedom in your trading you thought you were going to have when you started? Lets think about this for a minute. Many day traders I talk to  are stressed and  in reaction mode all the time. Why? Well lets look at the typical trading mentality I come across.

Trader "x" has a theory (trading system) about the particular futures market he trades. He surmises that when the price action does that special thing, the "candle wiggle" lets call it, at a trend line then the market will repeat the same behavior he has observed many many times before. So he is always staring at the right candle on the chart, you know the one , the one that is still forming, the one that is going to do the "wiggle " that will lead to the home run trade he has been looking for all day...

Suddenly he sees the "wiggle", and the market is close the that magic trend line. Oh could this be the one, he has sat in front of the computer monitor all day, and now is the chance he has desperately waited for? Now, will he react the right way? Or will he make a hasty decision in this moment he has so longed for..

Sound familiar? It did to me,I have" been there and done that" as the expression would go. Not anymore, now I do not react to the ever changing market price conditions, now I wait like a hunter for the right time to strike. No longer "reacting" to just the price, but now "acting"with the current price  conditions at the right time of day. The Flux indicators give me the ability to look ahead and have an expectancy about the time that the market should move, or not move.

If you are a trend trader, and are looking to get into a move for a while, wouldn't you want to know that at this time of day, today, that the market typically goes into a choppy range?

This is the kind of information that the Flux indicator users have in advance, in fact , there are some Flux users that watch the indicator early in the morning or the day before,  then determine the time of day that they will show up to "work".... and then look for their candle to "wiggle", but they no longer  have to stare at the screen all day, anxiously wondering, whats next?

That's the Flux freedom!

 

Trading in the Zone with these 12 steps

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Trading in the Zone. Huh?  What zone? I thought I was trading in my office....there's a zone?

The following principles are taken from the “Trading in the Zone” by Mark Douglas. I refer to it's teachings constantly in our video series, "Basic Training for Traders". If Trading was a faith, and it had a bible, I believe it would be Mark's book.

Here they are in numerical order:

The 5 Fundamental Truths of Trading:

1. Anything can happen.

2. You don’t need to know what is going to happen next to make money.

3. There is a random distribution between wins and losses for any given set of
variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing
happening over another.

5. Every moment in the market is unique.

The 7 Principles of Consistency:

1. I objectively identify my edges.

2. I predefine the risk of every trade.

3. I completely accept the risk or I am willing to let go of the trade.

4. I act on my edges without reservation or hesitation.

5. I pay myself as the market makes money available to me.

6. I continually monitor my susceptibility for making errors.

7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.

In "The Disciplined Trader" for example, Mark Douglas points out that typical traders often avoid creating principles and rules, because they simply do not want to take responsibility for the results of their trading. They like the mystery and intrigue of the markets - of thinking that they have some input on what the markets are doing when they trade. They enjoy the working out of it all, taking their best guesses and going against the big boys head to head. They have something to talk about in the golf cart on Saturday - something to share at the dinner table after the movie. They love sharing their opinions in chat rooms, and being asked their opinions by others - the camaraderie of it all.

None of this has anything to do with actual trading.

So print these rules out - and get serious about your profession.

 

 

When price and time indicators intersect

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When time indicators and price indicators intersect it's a very remarkable trading setup.

Gann spoke about the confluence of those two universes - stating, "there is a definite relation between time and price".

When the time indicators in the Flux generate a signal, it's based off of thousands of bars of analysis - no small feat. That small green or red dot signifies a distillation of many movements. The computer is in essence saying, "this dot is here, because this is usually when the market goes up, or down. Now. Not 6 minutes from now. Now. Time indicators are great in that sense.

Price indicators are generally okay - but when you do the same data mining on price as you do on time, the answer is more meaningful. Instead of looking at floor trader pivot indicators, or murrey math lines, you're looking at or asking the question, "where has price been reflected in the past?" to your price indicator. The FPC accomplishes that task in the Flux toolset - and brings back a line to show you where those major reflections have occurred in price, over and over again.

Look at this chart from today's AUDUSD:

See the intersection of time (green) and price (red line) above?

Think about the psycological implications of the time indicators, and price indicators, converging here.

You are less prone to risk more - as it should go up - now. And not go down, much lower. The red line serves as a backstop - a launchpad. The green dot serves as a countdown.

We light the rocket, and stand back, and expect a move. It's not so much a guess as a logical expectation of a behavior pattern. When we light the rocket - it usually goes up.

When we see a green dot, above a red line, it usually rises (price).

Most traders aren't using any time indicators, and focus mostly on price indicators.

As you can see from the above - not paying attention to these repeating behavior patterns in time is a self-induced blind fold.

The information can be found, and known, and applied pragmatically.

Trading Naked without my timing indicator

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LOL, the title sounds a little funny doesn't it.

This morning in the live training room, we were discussing what price based indicators actually do for us, and how so many of the ones in the stock "list" really didn't do much to give us a heads up on the market.

They all told us what it had done, but none could project what it should do. Even when loading the amazing Fibonacci tools, there were as many ways to look at them and opinions on what they meant  as there were people in the room.

At one point I took all my Flux timing  indicators off of the chart.

 

It looked like a hundred mile long stretch of desert highway glaring back at me from the monitor.....not very appealing!

 

I could see candle stick patterns, and market structure, even a few price patterns, double tops, W bottoms etc.,  but none of them gave me any insight as to the next bar forming on the chart, and what it was likely to do.

Then one of the traders in the room said it looked like I was "trading naked", and to be honest, after having the Flux for so long, that is exactly what it felt like.

It made me realize just how important the timing indicator has become to me, and how powerful it really is.

To see a bare chart, and even put on a few standard trading indicators, Stochastics, MACD, Pivot levels -  it was still not the same.

Without that text on the chart glaring at me, telling me the next turning point was coming in 22 minutes, I felt lost. To be honest it was a little uncomfortable.

 

 

 

[Flux turn signals warning impending behavioral moves]

 

I am very thankful to have this powerful tool, and this timing indicator.  It's not an 'end all', or a 'holy grail', but it definitely makes a huge difference in how I see the markets.

I don't think I could trade without it anymore......and feel naked when it's not there.

 

 

 

Addicted to trading

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I received an email a few days ago from a trader overseas that distressed me somewhat.

The email more or less expressed that this trader had blown through her savings, her credit cards, and her trading accounts.

She had a few thousand dollars left in her account, and pending some living expenses, would have less than $500 available for food.

I wasn't sure what markets she was trading....if she was watching the EURUSD, the emini S&P, or Crude Futures - but I certainly sympathized with her situation.

She was desperate, clinging to the last few inches of the trading rope - and finally stumbling on a vendor that cared enough to talk about the darker side of day trading.

And so I sat down to write her an email, expressing my concern for her and most particularly, where she had traded herself into. A death spiral.

I went on to explain that I hadn't met a trader that had traded themselves into those circumstances, and traded back out of them successfully. I didn't know anyone that traded with an account as small as hers was now, and successfully handled the stress from the reasonable draw downs that were sure to ensue. Lastly - the stress of trading to survive when a trader had never been profitable was a Herculean task. And again - I'd never seen it done.

I asked her to explain her methodology to me...what her setups looked like - and what her general profitability was. I was trying to ascertain if she even had a methodology - or like most traders - was drawn into the spider web of fast profit vendors that pushed their plug-in-and-play systems to the waiting hands of naive people.  I know one trader actually that paid $2000 for a "MACD CROSSOVER SYSTEM". We both laughed at that point in the conversation - remembering that we've all been there.

I came to find out she didn't have a system. She was biased by what she had heard on TV and read in the papers. She wasn't taking longs for such and such a reason, or wouldn't take trades on certain days in certain directions because of what so and so had told her. It was crazy trading - no rhyme or reason to it. Straight newbie discretionary trading.

All she wanted to see, was a few Flux charts for later in the week, so she could compare her charts to our signals.

Now, I did the math really quick. After food - she had negative $1500 to pay for the Flux tools. Not a healthy sum.

But that wasn't the really disturbing part.

In a follow up email, she confessed that she wanted the charts sooner if possible, as she had a limit order sitting in the market on the Emini S&P.

I lost all but the last breath in my body. After everything - she was still trading live.

When I pressed her on this trade she confessed, "I'm addicted".

 

It's easy to get addicted to trading - or the idea of it. For poops and giggles, I went over to the largest trading company's website. Let's call them "FadersInternational".

I went to their Blog. -click-

The blog was a series of client's success posts from the room.

"MADE 50 TICKS TODAY IN 5 SECONDS!!!!"

"UP 14% TODAY!@!!!"

....and so on.

 

You tell me.....is that an honest, and accurate portrayal of trading - or a silver lined spider's web designed with one purpose and one purpose alone?

We've all been where this woman has been. I've seen things that pain me to talk about.

In the end, I'd like to think that you do traders disservice by not trying to talk them out of trading live, especially without the fundamentals in place.

I want to shake people sometimes and say, "you need to stop, now".

Most times I'd rather shake the other vendors - press their faces into the pages of the emails we get - the cried for help at the 9th hour with nothing left but rent money and mayonnaise sandwiches.  I want to ask them how they sleep at night and look themselves in the mirrors they bought with money from people like this lady.

It's not all profits and playgrounds. Trading, is the hardest thing I've ever seen people try to do.

I don't think I'm going to send this lady charts. I'm going to tell her that she should close her account out, take a break - and walk away.

Build up a savings account, and try again in a year, with fresh ears.

 

I'm pretty sure she won't listen to a word I'll say, though.

Trading Flux market timing cycles with Forex

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One of the things I hear a lot in our webinars, relates to news events.

Most Forex traders want to know how this or that reports affects cycles that are for all intents and purposes, known about and locked in a week before they potentially play out. They don't have futures and forex trading software that can handle that, or look for that. Market timing cycles are a mystery to most people.

Take a look at this AUDUSD chart from today (5 min).

 

I couldn't tell you what the news was today. I honestly have no idea - I've been busy writing these posts for our blog.

But what I found interesting to the technical analysis and trading of this forex pair is simply this - the majority of the cycle times pushed the market in the direction that we were anticipating the market to go.

What's even more interesting to me on this chart, is how the AUDUSD double tops at 8:30 this morning, near a major fractal pivot line, at the time we were expecting a sharp down move.

We then move into the 10:00 reversal ot the long side, with support beneath us.

Then the AUDUSD travels up to the next large FPC resistance area at 1.0710, lo and behold, a Flux turning time - double tops, and drops back down to structural support.

 

The long time cycle kicks in....the market drifts down to the thickest FPC line on the screen for the AUDUSD today...1.0693. And what does it do there?

Up.

Think about this next time you're trading the Forex.

The times that the market turns - and the prices that the Forex pairs will turn at, may be carved in stone - determined - before that market ever opened.

Waiting for the TIME cycle (dots) to intersect with the PRICE clusters (Fractal) results in a completely uncorrelated set of indicators, and a higher probability of the trade moving as it has in the past at that time and price.

WD Gann spoke about it in his writings 100 years ago - and the same market cycles are playing out real time today - uncovered by the power of our personal trading computers.

I am amazed that people who trade forex pairs, or the futures markets, don't use predictive indicators in their trading software arsenal. Most people are content to use indicators that lag in their NinjaTrader or Tradestation suite of tools. Predictive indicators, as evidenced above, not only provide a statistical trading edge - but an important emotional one as well.

It was good news in the AUDUSD forex pair today. We'll see how it plays out moving forward...