Retracement Levels

GBPUSD trade closed

2009-10-21T12:11:00.013+02:00

As recommended, we shorted heavily on GBPUSD at 1.6435 (100% Odds level to go SHORT). The trade became profitable yesterday and we closed half of the position at 1.6338.

You can see from the chart below, the frequency of reversal was low at 1.6338, that means this RL price level is not very frequently a LONG reversal area.

However, 97 pips profit from the top looked already good to us and we got some money off the table, to reduce risk exposure against a new upward move.

(click on the image to enlarge it)

Since it is risky to hold a position without a stop after a pullback (because the odds/levels are no more valid and they reset after the Close), we did set a stop loss right below 1.6435, to get out in profit in case the GBPUSD was going to go up again.

Today, our position was stopped out as the cable went higher than 1.6435. However we locked in some profits thanks to:
1) taking partial profit yesterday
2) having a stop loss in place at a level where we were still profitable on the trade

You can see that by using RL averaging down trading strategies, you can counter fight stop hunters and hold until the pullback/reversal comes in.

To learn more about RL trading strategies, you can enroll the RL Trading Course from here.

Posted by:

Wilson @ RL Team

GBPUSD SHORT - update

2009-10-20T12:12:00.006+02:00

The GBPUSD has reached overnight the 1.6435 level to go SHORT, with 100% odds. If this level is breached we are holding shorts and then we're ADDING shorts at each consecutive Close up (6 up in a row at the moment of writing), or at the next resistance at 1.6830 (although it looks far, for now). If the GBPUSD pulls back seriously from here, stellar profits may be made, all the way down to 1.58.

(click on the image to enlarge it).

If you want to learn RL advanced averaging down trading techniques, please enroll on the RL Trading Course here.

Posted by:
The RL Team

A Cable to SHORT

2009-10-16T11:09:00.014+02:00

On October 13, 2009, I mentioned on various blogs (e.g Slope of Hope, Evil Speculator, etc) that I was going LONG GBPUSD from 1.5719. I jumped in because at that level, our GBPUSD RL Odds Calculator suggested 90% odds to go LONG.
And now it has been proven that was the short term bottom for GBPUSD.

I took profit on this trade at 1.6192, which was the RL level with 88% odds to go SHORT (see Scaling Table, 4th image below).

(click on the image to enlarge it)

After taking profit, I suggested a short at 1.6192. However, the GBPUSD moved above the RL resistance at 1.6192, and advanced towards our 100% RL resistance at 1.6435.

(click on the image to enlarge it)

We never know for sure how much an impulse can last, however, what we can tell you is that the odds are now heavily on the SHORT side for this cross. We suggest you to SHORT it now.

(click on the image to enlarge it)

You can see from our RL scaling table below the precise odds. You can start betting aggressively SHORT now that the GBPUSD is reaching the highest odds level.

(Note: To set the 100% RL odds level is up to your discretion, you have the rights to set 1.6830 as 100% RL level as your preference. If you want to learn how to set the 100% odds correctly, you can sign up to the RL Trading Course from here )

(click on the image to enlarge it)

In addition, looking from a CCOC (Consecutive Closes Odds Calculator) perspective, after 4 up days, we have 94.88% odds to retrace back, on the Daily time frame, which give us additional confidence to SHORT at this stage.
Target profits for this trade could be huge, if the pullback goes back down to 1.58, in the order of several hundreds %.

(click on the image to enlarge it)

To access the RL Odds Calculators for EURUSD, USDJPY, GBPUSD and USDCHF, you can sign up here

Posted by:

Wilson @ RL Team

>87% profit on the suggested GBPUSD trade

2009-10-08T10:17:00.028+02:00

Two days ago we recommended taking the LONG GBPUSD trade because of the > 91% odds on the GBPUSD CCOC tool.

The CCOC is an EOD proprietary tool and the trade was taken at Close on the final closing price around 1.5920 (depending on your broker's quote). The trade was taken on October 6, 2009.

(Click on the image to enlarge it)

The trade turned out to be a great winner. Today we took profit on it, at 1.6060.
A fantastic 140 pips profit in only two days.

In dollar terms, for every $1.592, we've made $1.400 (or every $1000, we've made $879, an 87.9% profit in only 2 days).

(Click on the image to enlarge it)

On the RL Frequency Graph (below), 1.6060 was one of the most frequent RL levels.

(Click on the image to enlarge it)

On the RL Scaling Table (below), you can see that the 1.6060 had 71.56% of the odds to go SHORT, a very good level to take profit.

If you took this trade, you can hold it for more, if you want, just check the odds, have a stop loss in place and get out before it reaches 100% odds.

(Click on the image to enlarge it)

Now you can see the advantage of trading FOREX with RL. A >87% profit in just 2 days is definitely hard to achieve with Future or Equities, but with FOREX, it is highly possible, it is actually happening every week.

If you are trading EURUSD, USDJPY and you want to use the RL tools, you can Sign Up here.

Posted by:

Wilson @ RL Team

Trading Forex with RL

2009-10-06T21:02:00.043+02:00

Hi everyone,
this is Wilson from the RL Team

I believe you have already witnessed how powerful the RL tools can be in index trading like the SPX, NDX, etc.

However, not everyone has the necessary pool of funds to play securities like SPY, ES, QQQQ, etc. and not every day we are able to capture huge index movements to reap lucrative profits.

We have already highlighted how the RL system works at best for the following type of securities, in decreasing order:

1. FOREX with margin

2. Futures

3. Equities

If you are a RL member, you can access the EURUSD, USDJPY on our website now, but we are in the process of creating new Forex Odds Calculators like USDCHF, GBPUSD and others.

The GBPUSD RL Odds Calculator is shown here for the first time to the public.

Let’s see an example of how the GBPUSD calculator worked today.

Today, 6^th of Oct 2009, we have seen first the GBPUSD spiking up. It went to 1.6048, followed by a fast pull back and then went all the way down to 1.5876.

RL spot on reversal

(Click on the image to enlarge it)

By using the RL Odds Calculators, the correct level to be shorted could be determined in advance.

On the RL Frequency Graph (below), you can see 1.6041 was the most frequent SHORT reversal level.

(Click on the image to enlarge it)

On the Scaling Table below you can see that the 1.6041 level had 56.83% odds to go SHORT.

The odds are the most important factor in determining your trades. When you have good odds on a level, you are no more in a guessing position, and hence the confidence when placing your bets increases.

(Click on the image to enlarge it)

Now, let's see what happened today with the GBPUSD, to see a practical example of how to use the RL Odds Calculator to front run the news...

You can see that these news about GBPUSD only came out at 8:37 GMT (or 4:37 NY Time)

News -Sterling falls due to weak data

(Click on the image to enlarge it)

If you were using the GBPUSD odds calculator to place your trades, your order would have been executed one hour before the news was released and would have been by then widely profitable. This is illustrated by the GBPUSD 10mins chart below.

RL front run the news
(Click on the image to enlarge it)

As a bonus, I’m telling you I am seeing a LONG trade on the GBPUSD today, here, right now!

Again, this is the first time RL Team reveals the GBPUSD CCOC Comparator to the public. Since GBPUSD is currently showing 4 consecutive days down, we decided to show you the CCOC odds in case you wanna try a long play with good odds from here.

From the GBPUSD CCOC table below, we can see that we have an overall 91.19% odds to go LONG at the moment. The odds are very good for a long play, from a CCOC point of view, on Daily, Weekly and Monthly time periods, for the GBPUSD cross. Of course anything can happen, we do not rule out the chances that we may see further downside of GBPUSD, but at this juncture the odds are good for a LONG.

I hope with this post to open up a new world of trading opportunities for you using the RL Forex Calculators.

Please remember a few simple steps that can help you to be profitable in trading with RL:

1. Always trade with odds > 50% on your side
2. Set your Stop Loss at no more than 1/3 of the range above/below the level where you enter your trade

If you are not a RL member yet, you can click here to sign up.

Posted by:

Wilson @ RL Team

RL beats the Fed hands down

2009-09-24T13:33:00.015+02:00

On September 23, 2009, the Federal Reserve Bank of America made the announcement on the interests rates. As often happens, a huge market spike took place right after the announcement, in the form of an upward move.

The ES Hourly RL Odds Calculator gave a signal to go SHORT right at the top of the spike, with a 0.25 error margin.

Here below you can see the ES 60 min. chart showing the upward spike and the following pullback that happened almost EXACTLY on the RL Hourly resistance at 1075.48.
(Please notice that these charts are correctly set for ES closing at the bottom of the hour, i.e. at the 30 minutes - too many traders are completely unaware of the fact that ES does not close at .00 on the 60min. charts, because they use retail trading platforms that provides only the 60 min. Close at .00, no matter what the security is. Go check the CME equotes platform and you will discover that ES Hourly closes at the bottom of the hour).

(click on the image to enlarge it)

Here below are the screenshots of the RL ES Hourly Odds Calculator right at the time the Federal Reserve made the announcement (click on the images to enlarge them).

As you can see the Odds Calculators were pointing out that the odds to have a SHORT reversal at 1075.48 where 78.57%.

Many traders are usually scared of taking positions on Fed days or other days where the news seems to be ruling, but the truth is that the RL Odds Calculator are able to transcend the events/news.

The RL Odds factor in everything, Fed days, CPI days, Black Swan events, etc., because they include large sets of historical data that already include all sort of events that happened in the past and will happen again in the future.

In other words: the odds are everything, once they're good, the trader should just take the trade and forget all the rest, all the noise that is confusing their trading decision (news, blogs, indicators, EW, TA, etc.).

Following this simple truth, RL Traders yesterday made a boatload of profits, going SHORT on the suggested level, in the face of the Fed and their 'keeping rates low' policy that in theory should have sent the market higher, and in the face of all those who says 'never trade when there are big news coming out'.

The odds are everything, once they are good, trad'em.

Posted by:
The RL Team

Karl Denninger explains what's behind the market spikes

2009-07-31T15:23:00.002+02:00

What is the difference between BIAS and QUANTITATIVE approach?

2009-07-28T14:20:00.015+02:00

What is BIAS?

From Wikipedia (http://en.wikipedia.org/wiki/Bias):

Bias is a term used to describe a tendency or preference towards a particular perspective, ideology or result, especially when the tendency interferes with the ability to be impartial, unprejudiced, or objective. In other words, bias is generally seen as 'one-sided'. The term biased is used to describe an action, judgment, or other outcome influenced by a prejudged perspective. It is also used to refer to a person or body of people whose actions or judgments exhibit bias. The term "biased" is often used as a pejorative, because bias is inherently unjust, lacking merit.

And now let's see what QUANTITATIVE RESEARCH is...

From Wikipedia (http://en.wikipedia.org/wiki/Quantitative_research):

Quantitative research is the systematic scientific investigation of quantitative properties and phenomena and their relationships. The objective of quantitative research is to develop and employ mathematical models, theories and/or hypotheses pertaining to natural phenomena. The process of measurement is central to quantitative research because it provides the fundamental connection between empirical observation and mathematical expression of quantitative relationships.

So, it appears pretty obvious that BIAS is the symbol of prejudice and lack of objectivity (or at least lack of impartiality), while QUANTITATIVE RESEARCH is a scientific way to approach problems.

Markets are largely a mathematical problem, not a personal crusade against windmills as some (biased) traders believe. Markets are also a place of cheating (the whole Wall Street industry is based mainly on cheating at various levels), so traders must know that the market rules itself regardless the external events.

Markets are self-reflexives, or in other words, they reflect only themselves, the external events may be taken as an excuse to perform certain actions, but the market does not really depend on external factors but rather on its own internal drivers and dynamics.

The naif market approach typical of so many traders, drawing trendlines or trying to see chart patterns, or counting Elliott Waves, in the hope of identifying tops and bottoms, has been quite often shattered by the cold reality of the market's 'irrational' behavior.

In fact there is nothing irrational in the market's behavior, quite the contrary: the market is a device to make money and as such it always does what is it in the best interest of those who controls it to make money for them. So, the market is always perfectly rational.

Of course some people may not agree with the market's behavior in some occasions, because it does hurt their interests (and their bias, hurting in turn their ego). These people are the ones usually calling the market 'irrational', and in 99 cases on 100 these people are not the ones controlling the markets, they are its victims. That's why they scream: "This is irrational! It must end now!".

Every individual that wants to trade successfully must understand that bias, whatever is based on, should be set aside, together with methods that are not scientifically or mathematically-based. Bias can cost you dearly when trading, and empirical methods like TA, EW and the likes can put you out of the game even quicklier.

An example of this is what has happened recently in the US markets, with the in-famous H&S pattern that was visible on the S&P500 index at the half of July 2009.

[click on the image to enlarge]

As you probably know, 100% of Technical Traders were convinced that this H&S was the clear sign that a new Financial Armageddon was about to begin and soon the SPX would have gone down to retest the sub-700 March bottom, as a minimum.

The problem with all these amateurs is that they forgot to check one very important thing: the odds for that event to happen, possibly using some scientific method to determine them.

In other words: what were the odds for that H&S to be successful?

No-one knew it.

Actually, Technical Traders or ElliottWavers never know the odds for any of the trades they take. They are all gambling, hoping to get a lucky streak.

In reality there were various methods to assess the odds of success for that specific H&S pattern and the traders that did spend their time trying to calculate them decided to go LONG, not SHORT, on July 10, 2009, enjoying fantastic profits the following week, while the rest of the world was biting their nails hoping they were just having a nightmare and to wake up soon.

This chart, for example, was presented to RL Traders on July 10, 2009 and it is a fine example of how simple quantitative research can assess market direction much better than chart patterns:

[click on the image to enlarge]

The study clearly suggests to go LONG, or the opposite of what the H&S pattern at the time said. Guess who was right...

Another interesting observation could have come from the study of a more sophisticated tool, the proprietary RL Odds (%) Calculator LONG for the SPX Weekly (below) that on July 10, 2009 showed clearly that the price area with the highest probability of seeing a Weekly LONG reversal was between 889 and 798 (inside the yellow square).

[click on the image to enlarge]

This tool performs historical pattern-matching of self-similar SPX retracements since 1950 and can tell you what to expect on average by every retracement going on in the present, be it up or down. In other words, the tool can tell you on average where a retracement will end and in this case it was telling us that a LONG reversal was about to start very probably between 889 and 855.

Sometimes this tool spots the reversal point to the penny, and sometimes it does spot only the area where the price will reverse. In this case it did not spot the reversal price to the penny, but since the SPX reached 869.32 on July 8, 2009, looking at this graph one should have started to wonder how much downside was still possible (and the answer was: "Probably not much"). Knowing this would have avoided a trader taking a SHORT position based on the SPX's H&S pattern.

What happened after July 10, 2009 is well known:

[click on the image to enlarge]

So, the lesson that emerges clearly by observing the facts without bias, is that there were very clear signals (for those who wanted to see/find them) announcing the probable failure of the Head & Shoulders pattern on the SPX, but traders with bias were too busy in dreaming their future profits, instead than spending their time to analyze the market in a scientific way and the final result was, unfortunately, a tragedy.

The history of the markets it's full of cases like these, there are countless stories of TA patterns, EWaves or trendlines purely based on subjective point of views that failed and caused severe losses.

The saddest part of the story is that these losses could have been avoided if traders would have focused on quantitative research and statistical studies, rather than on their wishful technical thinking.

Measuring the odds for a trade through quantitative research can separate those who stand a chance to make it in the long term in every environment, Bull or Bear, from those who make some lucky gains when the market matches their bias, but then, when the tide turns, end up losing it all because they are uncapable of sending their ego and bias right where they belong: out of the game.

The market is a complex chaotic fractal system where anything is possible, it cannot be treated as a stage to prove how right you and your bias are.

Quantifying the odds for a trade and then take action based on this analysis is the only 'rational' way to approach the 'irrational' markets. It pays off well, on average.

Posted by:
The RL Team
http://www.retracementlevels.com/

A New Bull Market?

2009-07-24T12:31:00.012+02:00

We have observed something in the Monthly structure of the current Bear Market that makes us doubt we are still in a Bear Market... If you have a look to the SPX MONTHLY chart below, you can see a comparison between the previous Bear Market (2001-2003) and the one we saw in 2008-2009.

Basically, observing the typical previous Bear Market structures, we can see that the cases in history where a Bear Market had a Bear Rally made of 5 Consecutive Higher Closes are rare.

5 Consecutive Higher Monthly Closes is in fact a typical Bull Market structure, or a Bull Market signature, if you want. Sure, July is not over yet, but the SPX must retrace below 919.32 to close this month down and it is not sure it will make it. Even so, it would still show 4 Consecutive Higher Monthly Closes and that is beyond the 'Bear Rally' typical behavior, although of course this may be an 'anomaly'.

[click on the image to enlarge it]

Let's have a look at the 1929-1932 Bear Market on the DJI (below). Here as well there are no signs of Bear Rallies lasting more than 4 months.

[click on the image to enlarge it]

The next Bear Market we are going to look at is the 1937-1942. Here there was an instance where the DJI actually made 5 Consecutive Higher Monthly Closes before turning south again.
Although one may question here if the Bear Market was still on when that happened since the DJI has been dicking around for a while with an upward bias since the bottom in 1938, so this Bear Market is debatable.

[click on the image to enlarge it]

Finally, the 70s period, someone calls it a Bear Market, but we don't really agree, it was more a FLAT period, with one year Bear Market and the next year a Bull Market, or, if you prefer, a lot of (Yearly) swings up and down. This below is a chart of the SPX Monthly for that period and as you can see during the Bearish years (e.g. 68-69 or 73-74) there were no signs of Bear Rallies with 5 Consecutive Higher Monthly Closes.

[click on the image to enlarge it]

Conclusion: although so many are convinced that another downleg is imminent, looking at the previous significant Bear Market cases in history, we don't see it happening, and we actually see a Bull Market structure in place, especially if July closes up. However, a correction is very due and possible, in August or September.

But there are plenty of examples that are showing us that after this correction we may have more upside and not a re-test of the lows as claimed by the most part of TA chartists, fundamentalists and EWavers.

We believe charts and EW have no predictive power at all, and we rely purely on quant data for our trading or investing decisions. What we are showing you here, the study of the 5 Consecutive Higher Monthly Closes pattern in history, it's an example of these type of studies and in our opinion it offers a much better assessment of the probable next market direction if compared to traditional charting methods.

Posted by:
The RL Team
http://www.retracementlevels.com/