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PushButtonPips EA Review

2011-03-08T23:41:00.002+02:00

Before buying a new product on the internet I normally do a search to see if there have been any reviews on the product by independent traders who can give an unbiased, impartial and honest review of the product. Sadly it seems honest forex robot reviews are hard to come by. When searching for a decent review on the Pushbuttonpips, low and behold it was no different.

Don't get me wrong there were plenty of so called reviews; sadly though, other than the developers of the product and the testemonials on their site, I could not find any reviews by real traders who had actualy tested the product themselves. If I missed any then I apologise, but I searched dilligently and alas only found so called reviews by marketers who were simply extolling the virtues of the product as proclaimed by the developers in their marketing material.

These marketers only obvious interest was in selling as many robots as they could without even doing a forward test on demo let alone test it on a live account. In spite of this I went ahead and purchased the product. My reason for this was that it was supposedly based on price arbitrage between different brokers.

I personally used this method to good effect a few years ago and managed to wrack up similar results over about a three month period trading strictly 1 hour a day on four currency pairs, without hedging them though. Unfortunately it did not last as the brokers involved eventually figured out what I was doing and closed the loophole. So when I read the sales pitch on Pushbuttonpips my curiosity got the better of me and I decided to give it a try.

Immediately I gave my crerdit card details I began to have my doubts as the the product I was purchasing at the advertised price was a watered down version on the supposed real thing. Nowhere in the sales pitch up to that point was there anything to say that what I was about to order was not the supposed amazing product advertised in the sales pitch.

Things only got worse from there, before I could actually download the software I had just paid for, I was subjected to two more sales pitches consisting of numerous pages, trying to sell me the real thing. Personally I think that is false adverising and clickbank should stop these thieves and ensure the public are getting what is being advertised before parting with their hard earned cash.

In spite of the sales pitch clearly stating that I could own this Bot for a single once off payment, my next surprise was that what I had paid for was a monthly subscription of $39 again not mentioned in the original sales pitch at all. By now I was thoroughly annoyed and wanted to cancel the transaction immediatly. After I composed my thoughts I decided to give it a try any way, the theory being that if the bot made even a fraction of what was advertised I would recoup my money very quickly.

The next task was to set up the Bot and let it do its thing. For this I had to download a second mt4 platform (one reccommended by the developers) in order for the bot to function correctly. Being a cautious trader I ran it on a forward test to see if it works as advertised. I purchased the product on the 21st of Feb 2011 and have run it on forward test till today 08 March 2011 starting with five K in each account. As at the close, the one account is at $5010 up 10$. The second account now has a balance of $4516 thats down $484 and a total of -$474

During the period I have observed the trades it seems there has always been a negative balance between the 2 platforms and the balance has dwindled by the day. If I label them platform 1 and 2 the in the early stages platform 1 was up about $200 whilst platform 2 was down $500. In the last few days though the position has completely reversed with platform 1 -$484 and platform 2 at plus $10.

I realise that 2 weeks is not a long time to test a product and that at times the market might lack volatility but if their ad is anything to go by, they claim never to have had a losing day in all market conditions so this should not be an excuse.

I have applied for a refund from clickbank, fortunately I did not buy directly from the vendor as clickbank normally honour refunds. The inexcuseable happened, these clowns kicked back my refund request as tech support and I had to request the refund again. The losing has nothing to do with tech support the EA simply does not make the money they promised. Shame on you clickbank for allowing unscrupulous vendors to renage on their product guarantees by allowing them to refer the purchasers back for refunds, not once but twice.

Overall not a great experience that produced only negatives from inception, and I would not reccommend anyone spend their hard earned cash on the system. I obviously cannot comment on the Standard and Extreme versions as I only tested the watered down version that was a con to start with. If they have to resort to unethical advertising to start with then my guess is the other versions will be no different to the above. Time will tell and I eagerly await some other impartial reviews by traders who have actually tested the product.

Summary
Unethical advertising to start with
Too many popups in the purchase process
Does not live up to advertisers promises
No money management facilities on the version I bought.(besides lot size only input)
Must be a brokers dream with the sheer volume of losing trades executed daily.
Have to open 2 trading accounts for EA to work. (FXCH not a great choice)
For other reviews on product click here
A good idea by the developers of pushbuttonpips but EA certainly has not worked for me.

Combining Indicators

2010-02-11T12:26:00.005+02:00

For me there is nothing worse than a messy chart. Sometimes I see some of my students charts and wonder how they can trade at all with the numerous arrows and indicators on their charts.

Trading can be as simple or difficult as we choose to make it and I realize that not every trading method suits everyone. In this article I have combined a number of indicators to confirm entries and still managed to keep the chart uncluttered.

Often using too many indicators only cause confusion and it is difficult to decide whether to combine trending indicators, oscillators or volume indicators. here are some indicators that work pretty well together.

I have used the following combination of indicators.

Current Trend line Break
Exponential Moving Average (Represented by the Red or Green Arrows) Setting 5/8
RSI with a 14 setting and only enter the trade when the 50 Line is crossed, this indicator is represented by the orange and blue candles. (When the candles are orange the RSI has crossed the 50 line short. When the candles are blue it has crossed the 50 line long.
Stochastic with a 14,3,3 setting with 90, 10, 40, 60 levels
Momentum indicator with a 21 moving average cross. The momentum setting is 10 with zero level added.
Laguerre filter line; with a gamma setting of 0.60, which is similar to a 21 exponential moving average.

In Spite of all the indicators the chart is still uncluttered and visually easy to analyse at a glance.

The trade setup is simple, when price crosses above or below the Laguerre filter line we check to see if all the indicators are in sync.

For a long trade, price must open above the Laguerre filter line; The candles must turn blue representing the RSI Cross above the 50 line.

A green arrow must appear representing the EMA cross.

We also check if the new candle has opened above the current down trend line. Occasionally we do not get the trend line break; then we can use the stochastic or momentum indicator to determine if the trend line has been broken.

The Stochastic must cross up through the 40 line

The momentum line must cross up through the Zero line and the 21 moving average must have crossed up through the momentum line.

When all 6 are lined up we can enter the trade long.

For a short trade, price must open below the Laguerre filter line; The candles must turn orange representing the RSI Cross below the 50 line.

A red arrow must appear representing the EMA cross.

We also check if the new candle has opened below the current up trend line. Occasionally we do not get the trend line break; then we can use the stochastic or momentum indicator to determine if the trend line has been broken.

The Stochastic must cross up through the 40 line

The momentum line must cross down through the zero line and the 21 moving average must have crossed down through the momentum line.

When all 6 are lined up we can enter the trade short.

I have used this setup on the 1 hour time frame and it seems to work well on most currency pairs. The stop loss is always above or below the previous high or low in the market. The take profit I determine with Fibonacci; or based on my normal money management policy.

The following USD/CAD shows a number of entries on the 1 hr time frame (Click to enlarge)
Obviously during quiet periods it can give false entries. I have used the system successfully during the Euro/London and US trading sessions.

The dotted vertical line has been used to show that all the indicators are lined up at the price indicated on the chart. As we can see not all the trades are big moves; but the system does offer many good trading opportunities.

The system creates a quick and easy visual representation of the current market situation in spite of all the indicators used. Obviously patience is a pre requisite for this system waiting for all the indicators to confirm.
Summary

Wait for current trend line break
Candles must change colour before entering in a new direction.
EMA Arrow must appear.
Candles must open above or below the laguerre filter line or 21 EMA
Stochastic must cross (short below the 60 line or long above the 40 line. it should not be above the 90 or below the 10 levels when entering a trade as the market could already be overbought or oversold.
Momentum must cross above the Zero line (long) below the zero line (short)

Forex Broker of choice

2009-10-16T14:39:00.005+02:00

Our preferred MT$ Forex Broker is FOREX,com UK “Forex.com acts as the clearing agent and counterparty to customers margined forex transactions introduced by “PracticalFX”. FOREX.com is a trading name of GAIN Capital - FOREX.com UK Limited and is authorized and regulated by the Financial Services Authority. FSA No. 190864.”

FOREX.com UK operates on the MT4 trading platform which is a professional sophisticated charting program with an array easy to use tools that allow the trader to open multiple charts and time frames on a single terminal.

The software allows us to change chart properties including the colour, style and scale. Windows can be configured within the terminal to suit individual trading needs and allows us to import or create our own custom indicators and automated trading software called EA’s or expert advisors. The program also allows us to set alerts that notify us when predetermined trading conditions have been met.

The program comes with dozens of the most popular indicators and EA’s which are easy to use.

Forex.com offers 37 real time currency pairs with commission free trading and are compensated through the bid ask spread on the various currency pairs. PracticalFX receives a rebate of 1 pip per round turn trade from forex.com. This rebate is not an additional charge to the client and has no effect on the normal bid/ask spread offered to its clients.

Standard or Mini accounts can be opened, the latter can be opened with as little as $250. Stop Loss and Limit orders are guaranteed to be filled at your price up to $2,000,000 under normal trading conditions. Placing contingent orders (Stop Loss/limit orders) may not limit your losses to the intended amount during Major Fundamental Announcements or outside of FOREX.com’s normal trading hours.

Forex.com also offers a practice account with up to $50 000 virtual money, allowing traders to test their trading strategies and familiarize themselves with the software prior to opening a live account.

Note: “FOREX.com UK is not currently accepting account applications from residents of the People’s Republic of China and Nigeria.

Governmental restrictions and our policies prohibit us from opening accounts from the following restricted OFAC sanctioned countries: Afghanistan, Burma (Myanmar), Cote d'Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Former Liberian Regime of Charles Taylor, Iran, Iraq, Libya, North Korea, Sudan, Syria, Unita (Angola) and Zimbabwe, as well as other individuals specifically sanctioned.”

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Chosing a Forex Broker

2009-10-16T14:04:00.004+02:00

When searching for a Forex broker to facilitate your trading there are a number of important factors to consider.

Be certain that they are a registered financial concern based in their country of origin. There are many brokers who operate out of the major cities of large countries; but are registered in some small obscure country whose financial laws are inadequate to protect traders. Lodging a complaint with financial regulators in their city of origin will not help as they are not regulated by that country.

In the United States the Forex market is regulated by NFA and CFTC and by logging on to http://www.nfa.futures.org/basicnet/ we can obtain the facts about the Forex Company. We can search for the firm by name to ascertain if there have been or are any pending complaints against the firm.

Recently the NFA have instituted changes that have had a detrimental effect on our ability to trade the market successfully.

These changes affect the placing of market orders like one cancels the other (OCO) used to bracket a trade.
Certain contingent orders like stop losses and limit orders will be affected by the new FIFO rules.
Hedging a strategy used to trade the same currency pair both long and short has been completely outlawed.

These new regulations have made it more difficult for traders to control risk and place pending orders.

Some brokers have instituted temporary measures or fabricated solutions which could back fire against them.

Others have simply instituted the changes to the detriment of their clients, whilst many have recommended that their clients move their funds to a reputable offshore broker regulated by European or British financial authorities.

Until these archaic and draconian measures have been removed by the NFA it will not be possible to recommend any of the US Brokers
.

We also need to check the net reserves of potential brokers as client funds are not always protected in the event of insolvency.
There are many websites dedicated to monitoring the activities of the numerous forex brokers world wide. A check on one of these sites can help ascertain whether your potential broker has a good reputation or not.
A word of caution here, there are few if any Forex brokers who do not have allegations of misconduct posted on these websites. Many of the complaints are posted by reckless, unsophisticated, uneducated or malicious traders.

Whilst there is no doubt there are certain brokers who are charlatans and crooks, simply out to relieve the unwary public of their hard earned cash there are also reputable brokers who offer a good service to traders with fair and honest dealings who are slated by traders who lose their money.

Client service is also of vital importance when choosing a Forex Broker. This is a market that runs 24 hrs a day 5 days a week, and being able to obtain trading assistance via phone, chat, or email at all hours is paramount.
Another important consideration is the trading Platform the broker uses. This could be propriety software unique to that broker or a popular trading program like Meta Trader.

Some of the factors to consider are:

Is it professional user friendly charting software? Here we need to determine how easy it is to place orders and customize the charting to suit our needs.
Do they offer demo accounts? Most new traders want to be able to familiarize themselves with the workings of the platform before trading real money on a live account. Experienced traders also use demo accounts to test new trading strategies before implementing them on their live accounts.
Is order execution fast and efficient? Only by placing trades can we determine if the order execution is efficient. What we need to watch for is the time lag between placing the order and broker execution.
Do they have an adequate number of indicators? Trading indicators are used to assist us in our daily trading decisions so we need to be certain that we have all the indicators necessary for us to make those decisions.
Is their chart pricing reliable? The only way we can check pricing is by comparing prices with other reputable brokers. If there are repetitive price spikes that do not appear on other brokers charts then we need to be wary.
What are their charges? Most brokers do not charge a commission on trades so be certain you are dealing with a commission free broker.
Are their spreads competitive? Brokers charge a spread fee. (This is the difference between the buying and selling price) Spreads can vary from broker to broker so be sure the spreads are competitive.
Here we also need to consider if our broker is offering fixed spreads or multi bank liquidity feeds. Many brokers choose not to use liquidity providers and take the other side of the trade, effectively trading against you. Others offer anonymous order execution and therefore have no dealing desk or interest in whether you make or lose money on each trade.
Can the software be customized to sit your needs? Many traders use customized indicators or automated systems to trade so be certain that your trading software can cater for your trading needs.
Is price feed reliable? When trading forex real time pricing is vital. Brokers who are frequently off line or who have numerous price freezes should not be considered. What is the minimum account size? Here you need to determine if your broker can cater for the amount of capital you are willing to risk.
What is the minimum transaction size.Transaction size is relevant to the amount of capital you invest in your trading account. There are standard accounts, mini accounts, and micro accounts available. It is financial suicide to open a standard account with a small amount of capital. Rather opt for a broker who can offer a mini or micro account to suit your capital.
Do they cater for your trading style? Many brokers take a dim view of scalping, and penalize traders for the activity, often only raising the issue when the trader tries to with draw their profits.
Most brokers these days widen their spreads when there are major high impact news releases and consider all pending orders market orders which could be detrimental to the trader. If you are a fundamental news trader you need to consider if the brokers rules will suit your trading style.

These are some of the factors necessary to consider when opening an account with a Forex Broker.

The Awesome Fibonacci Road Map

2009-08-20T23:46:00.011+02:00

Fortune Favors the Brave

As a Forex trading mentor I have found that teaching students to use Fibonacci retracements and extensions has always proved to be the most difficult aspect of their education. Many do not persevere with it and choose what they consider to be less complicated method’s to enter and exit the market.

The following recent sequence of trades shows the true profit potential of trading Fib’s. The 1.618 and 2.618 Fib extensions are natural profit taking points in the market where there is always a potential for a reversal or correction at these hidden support and resistance areas; and to my mind is therefore a low risk, high reward area to enter a trade.

If we accept that these points are where buyers are taking profits and in order to close their trades are in fact selling the base currency to exit the market; and that this is also the point where sellers are taking their profits and in order to exit their trades are buying the base currency to close their positions.

If we can accept that; then surely it is also an ideal place to reverse our position in addition to closing existing positions.

Chart 1 Click to enlarge

The above chart shows price hitting the 1.618 profit target off our point C which is the .786 Fib retracement. We enter the trade short at the 1.618 profit target price of 1.6663; and immediately price drops about 100 pips, to our previous high in the first 2 hours.

On the next chart we set our new fib range from the high at 1.6663 to our previous low at 1.6423 to establish our new fib 1.618 extensions for the profit target on the sell we just entered.

Chart 2 Click to enlarge

As we can see from chart 2 the market tanked at our new 1.618 fib target at 1.6275 where we closed our position with a 384 pip profit; at which point we reversed or position and entered long in the market. We set our new fib range from 1.6274 to 1.6319 with a profit target of 1.6464.

Chart 3 Click to enlarge

Our profit target is reached at 1.6464 where we had a correction of 59 pips. We closed our long trade at the 1.618 for 186 pips profit and entered a short trade with a 35 pip stop loss. This trade was closed out with a 35 pip profit and a new buy order was entered 10 pips above the previous 1.618 aiming for the 2.618 profit target.

The market rallied and our new order was entered at 1.6474 aiming for 1.6581 with our stop just below the previous low at 1.6404. The target was hit at 1.6581 where we closed our long position for 103 pips profit. We immediately entered the next trade short at the 2.618 profit target.
Chart 4 Click to enlarge

Once again the 2.618 profit target was reached where our short trade was closed and a new long trade was entered. The profit on that trade was 200 pips. As there is no recent high to establish my new A- B range I have gone back to my previous low and used my next high to establish take my new 1.618 target.

This trade produced about 225 pips profit and a new short was entered at the 1,618. Price immediately reversed to the 1.382 fib extension (Purple Fib) approximately 150 pips before a small correction to the current market price.

Chart 5 Click to enlarge

These targets are not coincidence, because the market more often than not hits these points and then reverses.

The price swing from 16273 to 1.6591 was also a .618 fib retracement which was more evidence to trade long off that 2.618 low on chart 4. I also use a very specific sequence to find the correct swings but more often than not the high or low of the previous price swing determines the ultimate 1.618 target. For all the trades off the 1.618 targets I use a 35 pip stop loss.

Chart 6 Click to enlarge

Price Action trading

2009-08-11T20:26:00.005+02:00

Price Action

An alternative to using indicators to enter trades is price action. As most indicators lag the market we often only enter trades late and leave a large slice of the profit on the table. Using price as our guide we can often get earlier entries with much tighter stops.

One of the more common methods is to use inside bars as an indicator of where price might go next. Inside bars are not necessarily reversal bars and can just as easily be the precursor to a continuation of the trend.

Pin Bar

A pin bar is any bar with a long shadow or candle wick where the open and closing prices are close together leaving a long tail or spike. (See more on candle stick patterns)

Inside Bar
An inside bar is any bar who’s high is lower than the previous bars high; and who’s low is higher than the previous bars low.

Once the inside bar has formed we cannot be certain if we will get a reversal or a continuation of the trend. If the inside bar is a pin bar or is followed by a pin bar then this is an added indication of where price might go next.

For the purpose of this exercise we will call the bar preceding the inside bar the control bar. Once an inside bar is formed the high of the control bar becomes our resistance and the low of the control bar becomes our support.

When price breaks the support or resistance of the control bar we enter the trade in the direction of the break. Our stop loss can be either the low of the entry bar or the low of the control bar on a long trade. On a short trade the stop loss is either the high of the entry bar or the high of the control bar depending on your money management and how tight a stop you want.

Alternately we can exit the trade if we have another inside bar and a reversal prior to our target being reached. The profit target on the trade should be at least two to three times the risk which is the difference between the stop loss and entry points.

If we examine the above GBP/USD 1 hr chart we see that we have six entries. The blue shaded areas represent the range of the control bar. On the first entry a buy at 1.6042 we had a bullish pin bar as our inside bar. The following bar was our breakout bar where price broke the resistance of the control bar and we entered long at 1.6042. Our stop loss was placed at the low of our entry bar; a 25 pip stop.

Aiming for three times the risk; required making 75 pips on the trade. Before reaching our target we had another entry and were able to scale in with an additional trade at 1.6102; then again at 6209 before we had the reversal at 1.6341.

The only possible losing trade was the second short trade where we would have been stopped out at the high of the entry bar prior to hitting our target if that was our stop as opposed to the control bar. With a good risk to reward ratio of 3 to 1 even a 50 percent winning ratio will mean coming out ahead.

Not every inside bar is followed by a pin bar but the method works equally well without it. The method works well as both a trend follower and reversal signal.

Summary

Wait for inside bar to form.
Establish the range of the control bar.
Place your orders at least 10 pips above and below the high and low of the control bar.
Once trade is entered, place stop loss and take profit orders.
If a reversal pattern appears before target is reached close trade rather than wait for stop loss to be hit.
In a tending market use this method to scale in with additional orders.
Don’t trade this method in flat market conditions.

Gold is Still Money

2009-06-01T20:55:00.000+02:00

May 29, 2009

By Robert Prechter, CMT

The following article is excerpted from a brand-new eBook on gold and silver published by Robert Prechter, founder and CEO of the technical analysis and research firm Elliott Wave International. For the rest of this fascinating 40-page eBook, download it for free here.

Have you ever traveled abroad and taken a look at the local currency and wondered how the citizens of that country could take seriously what looks like “Monopoly money?” I’ve got news for you: You’re using the same stuff. Monopoly money is the money over which some government has a monopoly. It is the currency of the realm only because the state makes it illegal to use any other type.

Promissory notes issued by a state and declared the only legal tender are always doomed to depreciate to worthlessness because of the natural incentives and forces associated with governments. A state cannot resist a method of confiscating assets, particularly one that is hidden from the view of most voters and subjects. By extension, it is unreasonable to advocate a standard for such notes, which is simply a state’s promise that its currency will always be redeemable in a specific amount of something valuable, such as gold. A gold standard of this type is only as good as the political promises behind it, reducing its value to no more than that of paper. It could be argued, in fact, that a state-sponsored gold standard is far more dangerous than none at all, as it imbues citizens with a false sense of security. Their long range plans are thus built upon an unreliable promise that the monetary measuring unit will remain stable. Later, when the government’s “IOU-something specific” becomes, as Colonel E.C. Harwood put it, “IOU nothing in particular,” reliability disappears and the arbitrary reigns. Although the populace tends to retain its confidence in the currency for awhile thereafter, the ultimate result is chaos.

The only sound monetary system is a voluntary one. The free market always chooses the best possible form, or forms, of money. To date, the market’s choice throughout the centuries, wherever a free market for money has existed, has been and remains precious metal and currency redeemable in precious metal. This preference will undoubtedly remain until a better form of money is discovered and chosen. Until then, prices for goods and services should be denominated not in state fictions such as dollars or yen or francs, but in specific weights of today’s preferred monetary metal, i.e., in grams of gold. Anyone might issue promissory notes as currency, but the acceptance of such paper certificates would then be an individual decision, and risks of loss through imprudence or dishonesty would be borne by only a few individuals by their own conscious choice after considering the risks. Critical to the understanding of the wisdom of such a system is the knowledge that private issuers of paper against gold have every long run incentive to provide a sound product, just as do producers of any product. As a result, risks would be minimal, as the market would provide its own policing. Thievery and imprudence will not disappear among men, but at least such tendencies in a free market for money would not have the potential to be institutionalized, as they are when a state controls the currency. From a macroeconomic viewpoint, occasional losses resulting from dishonesty or imprudence would be extremely limited in scope, as opposed to the nationwide disasters that state controlled paper money has facilitated throughout history, which have in turn had global repercussions. As Elliott Wave Principle put it, “That paper is no substitute for gold as a store of value is probably another of nature’s laws.”

That being said, it is also true, and crucial to wise investing, that markets come in both “bull” and “bear” types. Being a “gold bug” at the wrong time can be very costly in currency terms. For nearly three decades, gold and silver’s dollar price trends have confounded the precious metals enthusiasts, who for the entire period have argued that soaring gold and silver prices were “just around the corner” because the Fed’s policies “guarantee runaway inflation.” Yet today, 29 years after the January 1980 peaks in these metals and despite consistent inflation throughout this time, their combined dollar value (weighting each metal equally) is still 40 percent less than it was then.

It is all well and good to despise fiat money, but it is hardly useful to sit in gold and silver as if no other opportunities exist. In contrast to the one-note approach, which has had an immense opportunity cost since 1980, competent market analysis can help you make many timely and profitable financial decisions in all markets, including gold and silver.

For more in-depth, historical analysis and long-term forecasts for precious metals, download Prechter’s FREE 40-page eBook on Gold and Silver.

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Pretcher on Gold and Silver

2009-04-03T14:19:00.002+02:00

April 2, 2009

By Nico Issac

In case you hadn't noticed: Over the past year of financial turmoil, the "safe haven" premium of precious metals has offered about as much support as a rubber ducky in a tsunami. Despite a string of powerful rallies, silver and gold remain well below their March 2008 peaks.

It goes without saying that the greatest opportunities in precious metals were not had by those who played the "disaster hedge" card; but rather by those who timed the trends as they developed, regardless of the fundamental backdrop.

Bob Prechter is in the latter group. Amidst the buzz and whirl of the most bullish backdrop in precious metals' recent history, gold and silver prices soared to new, all-time highs and calls for a "New Gold Rush" and "$30 Silver" flooded the mainstream airwaves. Yet Bob alerted subscribers to an approaching top in the March 14, 2008 Elliott Wave Theorist.

"The wave count [in silver] is nearly satisfied, though ideally it should end after one more new high. If this analysis is accurate, and silver does peak and begin a bear market, gold is likely to go down with it."

In the days that followed, prices in both metals fell off a cliff. In turn, Bob was asked to address his exceptional call for a turn down in a March 19, 2008 Bloomberg interview. Here are of excerpts from that conversation:

Bloomberg: "Why did you put out that call on Friday (March 14) about a peak in precious metals?"

Editor’s Note: You can download Bob Prechter’s 5-page report, Gold & Recessions, free from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Bob Prechter: "One of the reasons is that it seemed like an absolutely sure thing. We track several indicators of sentiment. One of them is the Daily Sentiment Index (DSI). That reached 98% bulls on a one-day basis going into this last high. We were tracking silver as well… as it is clearest in our minds. Now, at the time, we needed one more slightly new high. That happened Monday morning and silver dropped 15% in 48 hours. That's a heck of a reversal and I think it's real."

"Real" indeed: From their March peaks, gold prices plummeted 34%, alongside a 60% sell-off in silver before hitting the breaks in October. Here, the October 2008 Elliott Wave Financial Forecast prepared for a corrective rebound and wrote:

"Silver traced out a five-wave decline from its March peak…Gold should also rally as silver pushes higher. Once silver's rise is exhausted (initial target: $15.15), the larger downtrend should resume for both metals."

A powerful, four-month bounce ensued in both metals: Gold prices came within kissing distance of its March peak before turning down on February 20; silver followed suit -- a fulfillment of this bearish, near-term insight presented in the February 23 Elliott Wave Theorist:

"Silver has been clear as a bell. Silver is due to turn back down, and gold, which is back at $1000/oz, is likely to follow."

Since then, it's been a steady march lower for both metals. Obviously, EWI's forecasts do not always prove this accurate. Yet in this case the analysis speaks for itself.

For more metals analysis from Bob Prechter, download Gold & Recessions a free 5-page report from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Key To Trading Success: Ignore Nature's Laws?

2009-03-27T14:10:00.000+02:00

March 25, 2009

The following is excerpted from Robert Prechter’s Independent Investor eBook. The 75-page eBook is a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.

By Robert Prechter, CMT

…The natural tendency of people to apply physics to finance explains why successful traders are so rare and why they are so immensely rewarded for their skills. There is no such thing as a “born trader” because people are born — or learn very early — to respect the laws of physics. This respect is so strong that they apply these laws even in inappropriate situations. Most people who follow the market closely act as if the market is a physical force aimed at their heads. Buying during rallies and selling during declines is akin to ducking when a rock is hurtling toward you.

Successful traders learn to do something that almost no one else can do. They sell near the emotional extreme of a rally and buy near the emotional extreme of a decline. The mental discipline that a successful trader shows in buying low and selling high is akin to that of a person who sees a rock thrown at his head and refuses to duck. He thinks, I’m betting that the rock will veer away at the last moment, of its own accord. In this endeavor, he must ignore the laws of physics to which his mind naturally defaults. In the physical world, this would be insane behavior; in finance, it makes him rich.

Unfortunately, sometimes the rock does not veer. It hits the trader in the head. All he has to rely upon is percentages. He knows from long study that most of the time, the rock coming at him will veer away, but he also must take the consequences when it doesn’t. The emotional fortitude required to stand in the way of a hurtling stone when you might get hurt is immense, and few people possess it. It is, of course, a great paradox that people who can’t perform this feat get hurt over and over in financial markets and endure a serious stoning, sometimes to death. Many great truths about life are paradoxical, and so is this one.

Can the Government Stop Another Great Depression?

2009-01-15T02:08:00.000+02:00

Can the Government Stop Another Great Depression?
January 13, 2009

The following article is excerpted from a recent issue Elliott Wave International’s Financial Forecast.

Elliott Wave International (EWI) is offering the full 10-page issue, entitled “The Most Important Investment Report You’ll Read in 2009,” free for a limited time. In addition to the following market commentary, it includes independent forecasts of stocks, bonds, metals, the U.S. dollar and economic trends.

Visit EWI to download the full report, free.

By Steve Hochberg and Pete Kendall
Editors of The Elliott Wave Financial Forecast

As Conquer the Crash so boldly counseled, prosperity entails managing one’s finances and livelihood so as to be in tune with a 1930s’ style deflationary depression. But conventional wisdom disagrees. “There’s no comparison” to the Great Depression, says the world’s leading financial authority, U.S. Federal Reserve Chairman Ben Bernanke: “I’ve written books about the Depression. We didn’t have the social safety net that we have today. So let’s put that out of our minds.” He cites as evidence a 25% unemployment rate, a one-third decline in U.S. GDP and a 90% decline in stock prices, all of which occurred during the 1930s’ depression.

Unfortunately, what Bernanke’s managed to do is put one important word out of his mind—yet. Like the rest of the “this is no depression” camp, he fails to note that his cited figures are the extreme readings of that era. Bernanke also ignores the critical fact that today’s bear market is actually ahead of where the stock market was at the same point during the 1929-1932 decline and that the economy is lurching lower in a manner suggesting strongly that it will have little trouble keeping pace with the economic contraction of the 1930s (see Economy & Deflation section below).

Another common refrain is that, in contrast to the early 1930s, there are now competent financial authorities doing everything in their power to unlock the credit markets and reignite the bull market in equities. It’s certainly true that the Fed is doing everything in its power, and even some things that aren’t, to reel in the crisis. The U.S. Treasury is doing likewise. By Bianco Research’s tally, the potential total of U.S. bailouts is closing in on $9 trillion. But these efforts are every bit as impotent as Conquer the Crash and the September issue of The Elliott Wave Financial Forecast suggested that they would be. Here’s the key quote from the September EWFF: “The bailouts keep coming at lower lows, signaling further declines ahead.” Incredibly to most people, since this quote appeared the Dow has declined by another 30% and various government financial wizards have put forward even bolder yet more haphazard “rescue” initiatives.

The ballooning bailout makes us more convinced than ever that it will fail. The whole “Keystone Cops” approach to “the rescue” strengthens our conviction. One day the bailout is aimed at jacking up asset prices; the next it is buying mortgages; the next it is rescuing the consumer; and the next it’s all-hands-on-deck to prop up whoever it is that happens to be failing on that day. The alphabet soup of rescue programs now includes ABCPMMMFLF (no, we didn’t make this up), which is supposed to “shore up” the $1 trillion asset-backed commercial paper markets. And still, credit spreads shoot higher.

Another program, the “systematically significant failing institutions program” (SSFIP), was established in November to deliver a $40 billion “equity injection” into AIG. The problem, which will probably become the focus of intense Congressional scrutiny at some later point, is that the injection was made in October, before the program even existed. The Wall Street Journal puts it this way: “Practically every day the government launches a massively expensive new initiative to solve the problems that the last day’s initiative did not.” At the latest economic summit in mid-November, the U.S. and other nations were reputedly “close to a deal to create a new ‘early warning system’ to detect weaknesses in the global financial system before they reach epic proportions.” Among the stated objectives: greater transparency. Of course, “sources spoke on the condition of anonymity because plans are still being worked out.” The real reason that these people want to remain anonymous is that like everyone else, they recognize the proportions of the unfolding epic and thus the futility of the bailout effort.

For more information on navigating the current market turmoil, including forecasts of stocks, bonds, metals, the U.S. dollar and economic trends, download Elliott Wave International’s free 10-page report, The Most Important Investment Report You’ll Read in 2009.

Steve Hochberg began his professional career with Merrill Lynch & Co. and joined Elliott Wave International in 1994. He became co-editor of The Elliott Wave Financial Forecast for its inaugural issue in July 1999. Pete Kendall joined Elliott Wave International as a researcher in 1992. He has been co-editor of The Elliott Wave Financial Forecast since its inception in July 1999. He is also the director of Elliott Wave International’s Center for Cultural Studies.

ADX Indicator

2009-01-12T04:26:00.006+02:00

Otherwise known as the Directional Movement Index is another of the J Wells Wilder systems discussed in his book "New Concepts in Technical Trading Systems" The ADX is a trend following system that comprises 2 parts the actual ADX which determines the strength of a trend and the directional index +DI and -DI which assist with exact entry points when they cross.

The ADX is scaled between 0 -100 with readings below 20 signifying a weak ranging market. A break through the 25 signalling the start of a possible trend and breaks above 30 signify a directional trend. A break above 40 indicates a strong directional trend.

This indicator does not specify market direction, it only indicates trend strength without telling you the market direction. In a falling market the ADX line will still be rising in a strong down trend so do not be confused and think a strong rise in the ADX line indicates a strong bullish market, it can just as easily be a strong bear market.

Click to enlarge
On the above chart the thick blue line is the ADX trend indicator, the green is the +DI and the red is the -DI

Most charting packages will include the Directional Index lines + DI and -DI. These lines are used to determine entry points for trades. On the following charts the + DI line is green and the - DI line is red. When the +DI(green) crosses the - DI(red) in and upward direction this is the buy signal and when the -DI(red) crosses the +DI(green) in an upward direction this is the sell signal. In both instances we would only enter the trade once the ADX crosses above 25 and stay with it if the ADX goes above 30.

When the ADX is below both DI lines then the market is clearly ranging and flat and not a good time to contemplate any new trades and even more so when all the lines are below 20 as can be seen in the first chart.

The +DI and -DI can sometimes be tricky to follow and I suggest using them in conjunction with another trend following indicator to confirm trade entries. Like all technical Indicators it is probably best to test it using different settings time frames and indicators to see which suits your trading style best. Click to Enlarge
As we can see from the above chart the shaded area is where the +DI and -DI lines cross for a potential Buy on the GBP/USD pair. At the time of the cross the ADX was still below 20 indicating a ranging market. I have used a MACD Line indicator to confirm the trade but the ADX still takes a few hours to confirm the long trend. The end result however was still a potential 300 pip trade.

Elliot Waves and Forex

2009-01-11T04:06:00.003+02:00

If you have ever wondered about using The Elliot wave Theory in Forex Trading ? Then watch as Jim demonstrates a “real life” Elliott wave trading scenario with on-screen charts and labels. The under 3 minute video clip is excerpted from Senior Currency Analyst Jim Marten’s 90-minute video trading course of the same name.

Watch this full $79 course, FREE. Click Here!

The Government Doesn’t Want You to Read This Article About the Financial Crisis

2008-12-04T00:34:00.000+02:00

December 2, 2008

Editor’s Note: This article has been excerpted from a free issue of Robert Prechter’s monthly market letter, The Elliott Wave Theorist.

The full 10-page market letter, Be One of the Few The Government Hasn’t Fooled, can be downloaded free from Elliott Wave International.

By Robert Prechter, CMT

“Who Will Benefit From The Housing Act?”

This question is an actual headline from a national daily paper. The real answer is: mortgage lending corporations, developers, real estate agents, speculators and politicians. The government is also pledging tax money to providers of “financial counseling” and grants for speculators who want to “buy and renovate foreclosed housing”; in other words, it will hand tax money to charlatans and unfunded wheeler-dealers. But a far better headline would have been, “Whom Will the Housing Act Hurt?” The answer to that question is: (1) prudent people, i.e. savers, earners, renters and people who have waited to buy a house at a reasonable price; and (2) innocent people, i.e. taxpayers.

Government action (unless it is aimed at destruction) always causes the opposite of its stated effect. If taxpayers ultimately have to shoulder the burden for all the bad mortgage debt, those who are on the edge of being able to make their mortgage payments will be forced over the edge, causing more missed mortgage payments and more foreclosures.

There is never any need for a law granting privilege except when the goal is to reward the undeserving and to punish the innocent. If the goal were otherwise, there would be no need for a statutory law, because the natural laws of economics, when unencumbered, serve to reward the deserving and punish the imprudent and the guilty. Populists loudly challenge this idea, but they are wrong.

I thought the Fed was created to “help manage the economy.”

After a secret meeting on Jekyll Island (GA), Congress and a handful of bankers created the Federal Reserve System for two purposes. The first one was to allow the government to counterfeit money, thereby letting it steal value from savers through inflation. The second was to allow bankers to make profits through debt creation, also at the expense of savers. Any other claim is a smokescreen.

So shouldn’t we blame the Fed for the country’s financial problems?

That’s like blaming the collapse of your house on the biggest termite. The Fed is only one of the monsters that Congress has created. In the financial realm, others include Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae, the FDIC, the FHA, the FHLBs and the income tax. But there are also a hundred other havoc-wreaking agencies of the federal government. Congress is to blame for ruining America. The Fed is only one of the mechanisms it created along the way. It’s a big one, and it’s fine to campaign against it, but to blame it for everything is to give its creator a free pass.

This is an important distinction, because many people seem to think that abolishing the Fed will cure America’s money woes. They seem to think that once the Fed is abolished, Congress will behave responsibly. One website even calls for abolishing the Fed in favor of giving money-printing power directly to the federal government! Abolishing the Fed is a worthy goal, but Congress will work tirelessly to create one disastrous institution after another, because that’s what campaign donors pay for.

For more information on the government’s role in the financial crisis, download Robert Prechter’s free 10-page market letter, Be One of the Few the Government Hasn’t Fooled.

Robert Prechter, Certified Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Robert Prechter Explains the Price Effects of Inflation and Deflation

2008-11-26T03:49:00.001+02:00

November 19, 2008

Editor’s Note: On Nov. 19, 2008, the U.S. Labor Department reported a 1 percent drop in the consumer price index for October 2008. The drop marked the largest decline in 61 years, and it was the first decline in that measure in nearly a quarter of a century. The 1 percent drop was twice as large as many mainstream analysts had forecast. Such a large decline in consumer prices is forcing U.S. policymakers to rethink the possibility of deflation in America. For more on deflation, we turn to Robert Prechter, the man who literally wrote a book on how to survive it. The following article, adapted from Prechter’s book Conquer the Crash – You Can Survive and Prosper in a Deflationary Depression, will help you understand exactly what to expect from deflation.

In addition to this article, visit Elliott Wave International to download the free 8-page report, Inflation vs. Deflation. It contains details on which threat you should prepare for and steps you can take to protect your money.

By Robert Prechter, CMT

Before explaining the price effects of inflation and deflation, we must define the terms inflation, deflation, money, credit and debt.

Webster's says, "Inflation is an increase in the volume of money and credit relative to available goods," and "Deflation is a contraction in the volume of money and credit relative to available goods."

Money is a socially accepted medium of exchange, value storage and final payment. A specified amount of that medium also serves as a unit of account.

According to its two financial definitions, credit may be summarized as a right to access money. Credit can be held by the owner of the money, in the form of a warehouse receipt for a money deposit, which today is a checking account at a bank. Credit can also be transferred by the owner or by the owner's custodial institution to a borrower in exchange for a fee or fees – called interest – as specified in a repayment contract called a bond, note, bill or just plain IOU, which is debt. In today's economy, most credit is lent, so people often use the terms "credit" and "debt" interchangeably, as money lent by one entity is simultaneously money borrowed by another.

When the volume of money and credit rises relative to the volume of goods available, the relative value of each unit of money falls, making prices for goods generally rise. When the volume of money and credit falls relative to the volume of goods available, the relative value of each unit of money rises, making prices of goods generally fall. Though many people find it difficult to do, the proper way to conceive of these changes is that the value of units of money are rising and falling, not the values of goods.

The most common misunderstanding about inflation and deflation – echoed even by some renowned economists – is the idea that inflation is rising prices and deflation is falling prices. General price changes, though, are simply effects of inflation and deflation.

The price effects of inflation can occur in goods, which most people recognize as relating to inflation, or in investment assets, which people do not generally recognize as relating to inflation. The inflation of the 1970s induced dramatic price rises in gold, silver and commodities. The inflation of the 1980s and 1990s induced dramatic price rises in stock certificates and real estate. This difference in effect is due to differences in the social psychology that accompanies inflation and disinflation, respectively.

The price effects of deflation are simpler. They tend to occur across the board, in goods and investment assets simultaneously.

…………….

For more information on deflation and inflation, including money-saving steps for protecting your wealth, download Elliott Wave International’s free 8-page report, Inflation vs. Deflation.

Why Your FDIC-Backed Bank Could Fail

2008-11-18T00:28:00.001+02:00

With big bank bailouts dominating the news, there’s no better time to get the truth about bank safety.

This informative article has been excerpted from Bob Prechter’s New York Times bestseller Conquer the Crash. Unlike recent news articles that are responding to the banking crisis, it was published in 2002 before anyone was even talking about bank safety. However, you may find the information even more valuable today than ever before.

For even more information on bank safety, visit Elliott Wave International to download the free 10-page report, Discover the Top 100 Safest U.S. Banks. It contains details on how you can protect your money from the current financial crisis, updated for 2008.

Risks in Banking

Between 1929 and 1933, 9000 banks in the United States closed their doors. President Roosevelt shut down all banks for a short time after his inauguration. In December 2001, the government of Argentina froze virtually all bank deposits, barring customers from withdrawing the money they thought they had. Sometimes such restrictions happen naturally, when banks fail; sometimes they are imposed. Sometimes the restrictions are temporary; sometimes they remain for a long time.

Why do banks fail? For nearly 200 years, the courts have sanctioned an interpretation of the term “deposits” to mean not funds that you deliver for safekeeping but a loan to your bank. Your bank balance, then, is an IOU from the bank to you, even though there is no loan contract and no required interest payment. Thus, legally speaking, you have a claim on your money deposited in a bank, but practically speaking, you have a claim only on the loans that the bank makes with your money.

If a large portion of those loans is tied up or becomes worthless, your money claim is compromised. A bank failure simply means that the bank has reneged on its promise to pay you back. The bottom line is that your money is only as safe as the bank’s loans. In boom times, banks become imprudent and lend to almost anyone. In busts, they can’t get much of that money back due to widespread defaults. If the bank’s portfolio collapses in value, say, like those of the Savings & Loan institutions in the U.S. in the late 1980s and early 1990s, the bank is broke, and its depositors’ savings are gone.

Because U.S. banks are no longer required to hold any of their deposits in reserve, many banks keep on hand just the bare minimum amount of cash needed for everyday transactions. Others keep a bit more. According to the latest Fed figures, the net loan-to-deposit ratio at U.S. commercial banks is 90 percent. This figure omits loans considered “securities” such as corporate, municipal and mortgage-backed bonds, which from my point of view are just as dangerous as everyday bank loans. The true loan-to-deposit ratio, then, is 125 percent and rising. Banks are not just lent to the hilt; they’re past it.

Some bank loans, at least in the current benign environment, could be liquidated quickly, but in a fearful market, liquidity even on these so-called “securities” will dry up. If just a few more depositors than normal were to withdraw money, banks would have to sell some of these assets, depressing prices and depleting the value of the securities remaining in their portfolios. If enough depositors were to attempt simultaneous withdrawals, banks would have to refuse. Banks with the lowest liquidity ratios will be particularly susceptible to runs in a depression. They may not be technically broke, but you still couldn’t get your money, at least until the banks’ loans were paid off.

You would think that banks would learn to behave differently with centuries of history to guide them, but for the most part, they don’t. The pressure to show good earnings to stockholders and to offer competitive interest rates to depositors induces them to make risky loans. The Federal Reserve’s monopoly powers have allowed U.S. banks to lend aggressively, so far without repercussion. For bankers to educate depositors about safety would be to disturb their main source of profits. The U.S. government’s Federal Deposit Insurance Corporation guarantees to refund depositors’ losses up to $100,000, which seems to make safety a moot point. Actually, this guarantee just makes things far worse, for two reasons. First, it removes a major motivation for banks to be conservative with your money. Depositors feel safe, so who cares what’s going on behind closed doors? Second, did you know that most of the FDIC’s money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks’ frailty to the strong ones. When the FDIC rescues weak banks by charging healthier ones higher “premiums,” overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise.

This result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs. If banks collapse in great enough quantity, the FDIC will be unable to rescue them all, and the more it charges surviving banks in “premiums,” the more banks it will endanger. Thus, this form of insurance compromises the entire system. Ultimately, the federal government guarantees the FDIC’s deposit insurance, which sounds like a sure thing. But if tax receipts fall, the government will be hard pressed to save a large number of banks with its own diminishing supply of capital. The FDIC calls its sticker “a symbol of confidence,” and that’s exactly what it is.

For more information on bank safety, including how to choose a safe bank during the current financial crisis, download EWI’s free 10-page report, Discover the Top 100 Safest U.S. Banks.

Has Cash Been King for the Past 10 Years?

2008-10-27T04:35:00.004+02:00

If you're like most investors, you've been nearly brainwashed with conventional market "wisdom" that stocks are the best way to grow your portfolio.

You would be crazy not to have your money in the markets, right?

But when markets drop, as we've seen in this credit crisis, it's amazing how quickly the story changes.

Steve Hochberg and Pete Kendall, editors of Elliott Wave International's Financial Forecast, challenged the notion of stocks' superiority years before this latest downturn.

Learn how cash has been king – and will remain so – far longer than the latest news headlines may have you believe in this free excerpt from Elliott Wave International's Credit Crisis Survival Kit.

Elliott Wave International has also made the full Credit Crisis Survival Kit available free for a limited time. In addition to this excerpt, it contains 14 other articles, reports, and videos that reveal how to survive and prosper during the credit crisis. Visit EWI to download the kit, free.

Cash's Invisible Reign Made Visible
[excerpted from Elliott Wave Financial Forecast, August 2008]

With respect to cash and its status as the preeminent financial asset, however, we are starting to wonder if investors will ever come around to our point of view, which, as we explained in the March special section, is that there are times when "the phrase 'focus on the long term' means "get out and wait.'" As we also pointed out, the last eight years are clearly one of these times, as cash has outperformed all three major stock averages over this period. A July 3 USA Today article shows how this outlook is actually becoming more farsighted as the bear market intensifies:

3-month Treasuries Beat
S&P 500 for past 10 Years

The article says, "Investors who bought stocks for the long run are finding out just how long the long run can be." But the farther back in time cash's dominance stretches and the rockier the stock market gets, the farther investors seem to move from ever taking anything off the table. After stating that "there can be times, long times, when stocks won't beat T-bills," a professor and popular buy-and-hold advocate is cited as "optimistic that the next 10 years will be better than the past decade." In March EWFF stated, "Cash will continue to outperform until stocks are no longer fashionable." There is no sign that such a condition is even close to happening.

It's somewhat amazing that cash is not capturing anyone's fancy because a tremendous society-wide thirst for cash is spreading fast. "In a deflation," the Elliott Wave Financial Forecast has stated, "Rule No. 1 is to unload everything that isn't nailed down. Rule No. 2 is to sell whatever everything remaining is nailed to." The banking system is surely deflating, because, echoing Elliott Wave Financial Forecast's wording again, "Desperate American Banks Are Selling Everything That Isn't Nailed Down." SunTrust is selling its stock in Coca-Cola, an asset the bank held for 90 years. Merrill Lynch sold its founding stake in Bloomberg as well as various other subsidiaries.

Meanwhile, "Americans are selling prized possessions online and at flea markets at alarming rates." Pawnshops and auction sites are booming. At Craigslist.org, the number of for-sale listings soared 70% in eight months. This fits with our review of Craigslist's prospects when it was getting started in 2005: "This is just the set-up phase. Once the global garage sale really gets rolling, truly astounding volumes of dirt-cheap goods will be available on-line and elsewhere." The global garage sale is on. The chart of the U.S. savings rate shows that the bull market in cash has come to life.

A 30-year downtrend in savings rates ended at minus 2.3% in August 2005. In May 2008, the savings rate skyrocketed to 5%. This jolt may be somewhat overstated due to the arrival of the government's stimulus checks, but the burst should be the start of a critical new mindset among consumers. When the government showered the economy with $600 checks, many did something they never would have thought of through most of the bull market: They put the money in the bank, which is exactly what the administration did not want. In fact, federal, state and local governments are desperate for the tax revenue that a little ripple-effect spending would have generated.

According to the National Conference of State Legislatures, states must close a $40 billion shortfall in the current fiscal year. "The problem today is that tax revenue is vanishing," says a story about the sudden appearance of the worst fiscal crisis in New York since 1975. Even cities like East Hampton, New York, where someone paid $103 million for an oceanfront house last year, are out of money. "Nobody understands how it happened," says one resident. The pages of this newsletter show otherwise. If we are right, a deflationary decline is depleting and destroying cash flows in novel new ways that no one alive has experienced before.

The previous analysis was excerpted from Elliott Wave International's Credit Crisis Survival Kit. The kit, featuring 15 free resources to help you survive and prosper during the credit crisis, is available free. Visit EWI to download the kit, free.

Three Questions

2008-10-07T08:29:00.004+02:00

3 Questions The Government Doesn’t Want You To Ask About the Financial Crisis
(And 3 Shocking Answers!)

September 22, 2008
Bob Prechter, President of Elliott Wave International (EWI), is no stranger to challenging the status quo. His New York Times bestseller, Conquer the Crash, was published in 2002 before anyone was even talking about the current financial crisis.
In his recent 10-page market letter, Prechter shifts his focus to the government’s role in the latest financial turmoil.

Elliott Wave International is offering the full 10-page report free if you’d like to read all 28 answers. Visit EWI to download the full report, free.
Here are 3 questions excerpted from the free report:

1. Didn’t Congress create the Federal Housing Authority, Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks for the purpose of helping the public buy homes?
You’re kidding, right? What happened is that clever businessmen schemed with members of Congress to create privileged lending institutions so they could get rich off the public’s labor. In return, members of Congress got big campaign contributions from the privileged corporations and, as a bonus, even more votes. The public’s welfare had nothing to do with it.

Who celebrated when Congress passed the latest housing bill? Answer: “The California Mortgage Bankers Association applauded Congress for permanently increasing the size of loans Fannie Mae and Freddie Mac can buy….” (USA, 7/28) The legislation exists to “protect the nation’s two largest mortgage companies….” (NYT, 7/24) Who took out full-page ads to encourage Congress to “enact housing stimulus legislation now”? Answer: the National Association of Home Builders.

Who celebrated when the administration “unveiled a new set of best [sic] practices designed to encourage banks to issue a debt instrument known as a covered bond”? Answer: “[Treasury Secretary] Paulson was joined at the news conference by officials from the Federal Reserve [and] the Federal Deposit Insurance Corporation…. Officials from banking giants Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. issued a joint statement saying, ‘We look forward to being leading issuers’” (AP, 7/29) of covered bonds. And voters still believe that Congress is there to help the needy.

2. Who cares if a bank goes under? Won’t the FDIC protect depositors?
The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it’s broke. But here is the real irony:

The FDIC, as history will ultimately demonstrate, causes banks to fail. The FDIC creates destruction three ways. First, its very existence encourages banks to take lending risks that they would never otherwise contemplate, while it simultaneously removes depositors’ incentives to keep their bankers prudent. This double influence produces an unsound banking system. We have reached that point today.

Second, the FDIC imposes costly rules on banks. In July, it “implemented a new rule…requiring the 159 [largest] banks to keep records that will give quick access to customer information.” As the American Bankers Association puts it, the new rule “will impose a lot of burden on a lot of banks for no reason.” (AJC, 7/19)

Third, the FDIC gets its money in the form of “premiums” from—guess whom?—healthy banks! So as weak banks go under, the FDIC can wring more money from still-solvent banks. If it begins calling in money during a systemic credit implosion, marginal banks will go under, requiring more money for the FDIC, which will have to take more money from banks, breaking more marginal banks, etc.

The FDIC could continue this behavior until all banks are bust, but it will more likely give up and renege. Remember, every government program ultimately brings about the opposite of the stated goal, and the FDIC is no exception.

3. Who are the “homeowners”?
Everywhere you turn, news articles are discussing how Congress, the President and the Fed are taking action to “help homeowners.” People’s understanding of this statement is 100 percent wrong. The homeowners in question are not the residents of the houses. The homeowners are banks.

Unlike some states, Georgia made its law very specific on this point. Our local paper recently explained that, by recognizing the reality of ownership, “Georgia employs primarily a nonjudicial foreclosure” and therefore “has one of the fastest procedures in the country.” Specifically, “The property owner gives the mortgage holder a ‘security deed’ or a ‘deed to secure debt’.

Technically, until the debt is paid, in full, the mortgage holder owns the property and allows the borrower to possess it.” (GT, 8/6) In states where the mortgage holder is deemed the property owner, the title is merely a legal technicality.

The day he stops making mortgage payments, he no longer owns the property; the bank does. After foreclosure, many of those whom politicians and the media call homeowners will simply go from paying interest to a bank to paying rent to a landlord. For those with little or no equity, it’s not that big a deal. The real devastation is happening in banks’ portfolios, and banks, not home-dwellers, are the ones whom the government is trying to rescue, at others’ expense.

One might be tempted to charge therefore that Congress makes its laws for the purpose of helping banks. This idea, too, is incorrect. Helping banks is merely a side effect. The reason that Congress creates privileges for bankers is to benefit politicians. They make laws in response to campaign contributions from lending institutions, real-estate organizations and builders’ associations. They also garner votes from mortgage holders and, miraculously, from voters who think that their “representatives” are being “compassionate.”

The previous 3 questions and answers from Bob Prechter were excerpted from his recent 10-page market letter, The Elliott Wave Theorist.
Elliott Wave International is offering the full 10-page report free if you’d like to read all 28 answers. Visit EWI to download the full report free

Trading the Cross Pairs

2008-09-30T06:29:00.007+02:00

Trading Certainties

Have you ever wondered if there are trading certainties where you just cannot get it wrong. And I don’t mean a 50:1 long shot either.

If you consider the following fact “All Forex transactions flow through the US $ to promote liquidity”

So how does this help me find a dead cert in trading?

The simple answer is because there is a direct correlation between most cross pairs and their USD counterpart. It comes down to simple arithmetic. The two counterpart pairs are multiplied or divided by each other to get the cross pair pricing.

Examples of a few cross pairs are:
Euro/Jpy, Gbp/Jpy, Aud/Jpy, Gbp/Chf ,Eur/Gbp etc,etc

If we therefore look at the Eur/Jpy which is made up of the Eur/Usd and the Usd/Jpy and do the calculations. We now multiply those two pairs by each other.

Eur/Jpy = Eur/Usd x Usd/Jpy
or current Eur/Usd Price 1.4350 x Usd/Jpy Price 104.08 = Eur/Jpy 149.35 or within a pip or 2 of that price.

If your broker’s price is way off that then they are not calculating the correct interbank price for the cross.

This works with most yen crosses and many others.

AUD/JPY = AUD/USD x USD/JPY
GBP/JPY = GBP/USD x USD/JPY
GBP/CHF = GBP/USD x USD/CHF

Other pairs are divided by each other rather than multiplied.
EURGBP = EURUSD / GBPUSD
EURCHF = EURUSD / USDCHF

These methods do not account for all the crosses but then I can’t possibly trade them all and have not tried to find the calculation for all of them.

Logic therefore tells us that if both major currencies are going in the same direction then the cross will also go in that direction and this gives us a guaranteed profit.

A 10 pip move lower by both majors equates to about a 25 pip move down by the eur/jpy cross 1.4340 x103.98 = 149.10

Look at the following chart a 200 pip move down on the eur/usd and a 330 pip down move on usd/jpy produced a 600 pip run down on the eur/jpy cross over the next 20 hrs or so.

Click to enlarge

The vertical red lines show the start of the down run when both eu an ej crossed short. The MACD also crossed short on all three pairs to further reinforce the move.

Make a point of understanding how the calculations are done for the cross pair you want to trade and it will help produce many guaranteed profits.

If there are any Meta Trader EA programmers out there who can write an EA for this trade based on a reliable indicator (I normally use a MACD line with settings of 10,22,5) I would love to test it.

Why the bailouts won't work

2008-09-21T13:07:00.004+02:00

Each morning lately brings new revelations about how the U.S. government is trying to save Wall Street and the economy from falling into complete disarray. Examples from Friday's (9/19/08) news: a ban on short selling, the government guaranteeing money market funds up to $50 billion and promising to buy distressed mortgages from banks and institutions. Prior to these plans, the Fed announced it would bail out the huge mortgage guarantors, Fannie Mae and Freddie Mac. Bob Prechter supplies some much-needed perspective about the plan to bail out Fannie and Freddie in his most recent Elliott Wave Theorist.

Excerpted from The Elliott Wave Theorist, September 2008

More Q&A: Righting Some Misconceptions About The Latest BailoutNow that the government is bailing out Fannie and Freddie…

The government is not “bailing out Fannie and Freddie.” If these companies were allowed to fail, all that would happen is that creditors would divvy up their assets and sell them off, taking their lumps in the process. The speculators in credit default swaps (CDSs) who were right would justly win their bets, and the losers would have to pay. If the losers over-promised, they would have to sell off their own assets.

So whom are the feds bailing out? They are bailing out the creditors who bought the IOUs that these companies created and the insurers who collected premiums on insurance against a fall in the value of Fannie and Freddie’s mortgages and mortgage-backed bonds. The guilty parties won’t have to pay, and the Chinese government, the “top foreign holder of Fannie Mae and Freddie Mac bonds,” won’t have to learn a lesson about investing.

Politicians are shifting all that greed and stupidity onto the innocent, the by-definition prudent, American taxpayer and saver. To be even more precise, the government is bailing out the dumbest creditors. Smart ones got out early. As EWFF reported in July 2004, “The European Central Bank has already eliminated its holdings of bonds issued by Fannie and Freddie and urged other European banks to do the same.” Only the dumbest investors own this stuff, and the government is disallowing them from learning something useful. In exchange, it is teaching taxpayers and savers a brutal lesson in civics.

Wasn’t the bailout necessary to save the financial system?
Government officials and newspaper editorials, even those from skeptical writers, have been unanimous in claiming that a bailout, no matter how unpleasant, was “necessary.” But this is nonsense. The only thing that has changed, the only thing the government can ever change, is who pays. A week ago, people on the hook were speculators who voluntarily took responsibility for losses when they grabbed the opportunity for gains.

In fact, they have already booked years of gains, in the form of interest payments, along the way. Now, those on the hook are people who had nothing to do with the transactions in the first place. This bailout will drain money from people who are solvent and thereby damage the financial system more in the long run.

Producers and savers are the very people upon whom recoveries depend. By shifting the losses onto them, the government has now assured the ultimate devastation of the entire financial system. The bailout is not just unnecessary; it is another disaster.

Don’t many banks and funds have supplemental insurance to protect themselves?

Tons of it. Insurers have written $62 trillion worth of credit-default swaps. Banks have private deposit insurance. But you have to understand: These seeming guarantees have been part of the problem, because they have given speculators a false sense of security. Insurers wrote them when they believed the system was risk-free. CDSs became speculative vehicles, and the liabilities at this point are way too big to cover. Additionally, many of the deals are complex and nearly opaque as to who owes what to whom. Insurance is always available when there is nothing to fear, but it goes away when big trouble looms.

A subsidiary of Warren Buffett’s Berkshire Hathaway company just announced (9/10) that it will stop offering supplemental deposit insurance to the 1500 banks it was covering. As you can see, it offered the insurance to make money, not to protect banks. Now that banks need protection, there is no more insurance. Still, one can hardly blame an insurance company for getting out of the business. Insurance is supposed to provide a way for prudent people voluntarily to socialize their risks. But when profligacy puts everyone at risk, insurance is impossible. In a depression, insurance companies stop insuring because they fail. Washington Mutual bank, reportedly in trouble, is 7.5 times as big as the biggest bank that’s ever failed in the U.S. Buffet is just acting ahead of the disaster. The government never acts ahead of disaster, so when the FDIC stops providing insurance, it will be because it has no choice.

Trading Fundamental Announcements

2008-06-01T22:42:00.005+02:00

Fundamental Analysis
Trading the news has always been a popular method of trading in the forex market. Time and again currency pairs move 50 to 100 and more within minutes or even seconds after a major announcement. Many factors have changed in recent years though, with most brokers no longer guaranteeing prices or spreads.

The days of trading large positions on a single move and exiting the trade equally as quickly are gone. During news releases these days most brokers treat forward orders as market orders. Because of the increased volatility just prior to and during these announcements, spreads are widened sometimes by as much as 20 to 30 pips and orders are unlikely to be filled at the predetermined prices.

This leads to stop losses being triggered at non market related prices, causing a far larger than anticipated loss. Entry into the market will generally be at a higher (long orders) or lower (short orders) price than the order intended.

If we consider the following set-ups we can see some of the pitfalls.
Long eur/usd at 1.5550 and up 10 pips on the trade with price at 1.5560. Recent releases lead you to believe the news is likely to be bad for the US$ and the market is likely to go even more your way when the news breaks.

Five minutes prior to the news you tighten your stop to just 20 pips from entry to 1.5530 just in case the news is better than expected and you can limit your loss. Two minutes before the news volatility increases and price briefly drops 10 pips back to your entry point, at the same time spreads widen to 20 pips and trigger your stop at 1.5530 causing a 20 pip loss before the news even comes out. The next minute or so see prices bounce between 1.5550 and 1.5560 and when the news breaks it shoots up 80 pips in the first minute or two and you kick yourself for tightening your spread.

Your initial presumption was correct, the news was bad for the US$ yet you sustained a 20 pip loss. Had the move however been in the opposite direction with an 80 pip move against you your loss would have probably only triggered at 1.5480 or worse if the spread was still at 20 pips causing a 100 pip loss instead of the 20 pips you initially planned for.

Alternately you may have decided to place a buy stop order 20 pips above the market price of 1.5560 to enter long at 1.5580 with a profit limit of 30 pips to be triggered at 1.5610. Price shoots up 80 pips to 1.5640 where your buy stop is filled rather than at 1.5580 which is 60 pips higher than you intended entering the market. Price starts to retrace and triggers your initial profit limit order at 1.5610 causing a 30 pip loss before heading long again.

These may be real possibilities so Why bother to trade the news?

With many currency pairs to choose from there are generally five to ten economic news releases every day from the various countries. All these releases are scheduled well in advance so we can regulate our trading accordingly. This allows us to choose the releases we want to trade and ignore the releases for the currencies we do not trade.

There also key reports that cause significant volatility with large sudden moves in the market that we can focus on.

Generally the economic calendar gives us the previous figure and the forecast figure. The difference between the actual figure and forecast figure is what determines the volatility and size of the move. The larger the deviation the larger the following move. Therefore news that comes out as expected according to analysts forecasts generally causes very little market reaction.
News also differs in significance which simply means certain announcements have the potential to create larger moves with more volatility than than less significant news items.

The actual number released is significant for the long term direction of the market but creates short term trading opportunities for break out traders and scalpers that sometimes only last a few minutes.

Often the market is very quiet prior to a major announcement because traders are staying out of the market in anticipation of a large move when the news breaks. The general belief is the quieter the market is prior to the announcement the larger the move is likely to be. This is because traders are sitting on the sidelines awaiting the announcement and then all jump in the moment the news is released. This often causes serious volatility and sometimes major moves in the market.

Trading the news
The first decision is to determine whether or not the news is tradable as some announcements can result in major volatility and whipsaw making it impossible to trade. The news could also be insignificant and hardly cause a stir in the market making it a no trade.

We need to consider the factors that have been influencing the markets recently, like inflation concerns, employment or balance of payments etc.

To be a successful fundamental trader requires studying the reports and keeping records. For example we need to record the expected number, the actual number, the deviation and the subsequent market move caused by that amount of deviation.

Only by keeping accurate records over a period of time will we be in a position to decide prior to the announcements what amount of deviation will trigger a move significant enough to trade and estimate the size of the move based on our recorded data.

Demo trading the news based on your analysis is the next step until you get a feel for how much of a surprise is required to trigger a tradable move and which news items to avoid because of their volatility.

Preparation is the major key to success in fundamental trading and will only bear fruit through diligence and practice.

The preferred method of most traders is to trade the numbers when released. Assuming the US employment figures were about to be released and analysts expected 150 000 new jobs had been created for the past month and the actual figure reported that 250,000 new jobs had been created suggesting future growth and a strengthening economy, the obvious decision should be to buy the US$.

If however the figure only reported 100,000 new jobs had been created then the obvious move would be to sell the US$ as less jobs had been created than expected suggesting a possible slow down in the economy.

Many traders also do straddle trades by placing stop orders above and below the market price prior to the announcement with the belief that the market must go in one direction or another. If the report causes enough volatility whipsaw can cause both orders to be triggered and slippage due to spread widening can cause substantial losses in both directions. At times when the market does run in a single direction the method can work well. Bear in mind though that many brokers will freeze new orders 30 minutes prior to a major announcement.

The following table lists the various countries news releases based on the size of each country’s economy, the frequency of their news releases and their currencies liquidity.

Symbol	Country	Currency	GMT Time
USD	United States	Dollar	13:30 - 15:00
EUR	Germany	Euro	07:00 - 11:00
	France	Euro	O7:00 - 09:00
	Italy	Euro	08:45 - 10:00
JPY	Japan	Yen	23:50 - 04:30
GBP	Britain	Pound	07:00 - 09:30
CHF	Switzerland	Franc	06:45 -10:30
Cad	Canada	Dollar	12:00 - 13:30
AUD	Australia	Dollar	22:30 - 00:30
NZD	New Zealand	Dollar	21:45 - 02:00

The following are the major announcements to monitor.

Employment Growth (Non Farm Payrolls)
Interest Rate decisions
Trade Balance
Gross Domestic Product
Retail Sales
Durable Goods
Inflation reports (Consumer Price Index and Producer Price Index)
Foreign Purchases report (TIC Data)

Summary

Trading the news is not easy for the novice trader and if you are not sure rather stay out of the market and close existing orders before the news comes out.
Familiarise yourself with your brokers policy regarding news releases spreads and orders.
Check your economic calendar daily.
Keep records of the important news releases and the market movement that results from the deviation.
Familiarise yourself with the important events that are influencing the market, specially the US Federal reserve reports and concerns as these seem to have the biggest influence on the market.
Even if you do not trade the news you need to check the economic calendar daily and familiarise yourself with the important ones to ensure you can deal with your open trades prior to the announcement.

Divergence

2008-05-07T22:32:00.005+02:00

How often have you entered a trade based on your regular oscillator indicator, or price action,? only to find the market moves in the opposite direction, then blame your trading system as a dud.

Divergence can be identified using any oscillator indicator like the Stochastic, MACD, RSI and CCI, etc, etc. Divergence measures the relationship between the price and the oscillator indicator. With practice divergence can easily be identified and used as a leading indicator that allows buy or sell opportunities near the top or bottom of the market. This in turn supports good money management principals with small stops and large potential profits.

The easiest way to identify divergence is to monitor your highs and lows as discussed in trends and trend lines. When price is making higher highs, your oscillator should be making the same higher highs. If price is making lower lows your oscillator indicator should also be making lower lows. If this is not the case then it means that price and oscillator are diverging from each other.

Once we have spotted divergence, our next task is to identify the type of divergence which will then enable us to to determine whether price is likely to reverse or continue in the same direction.

Divergence can be labeled as either regular, or hidden divergence. Regular divergence generally indicates a trend reversal, whilst hidden divergence indicates a continuation of the current market trend.

There are generally 4 types of divergence.

Regular Bullish Divergence
Regular Bearish Divergence
Hidden Bullish Divergence
Hidden Bearish Divergence

When price makes a lower low (LL) but the oscillator makes a higher low (HL), this is considered Regular Bullish Divergence and signifies a possible trend reversal.

When price makes higher highs (HH) but the oscillator makes a lower high,(LH) this is identified as Regular Bearish Divergence and indicates a possible trend reversal.

When price makes a higher low(HL) but the oscillator makes a lower low(LL) this is identified as Hidden Bullish Divergence and signifies a possible continuation of the current trend.

When price makes a lower high (LH) but the oscillator makes a higher high (HH), this is dentified as Hidden Bearish Divergence and signifies a possible continuation of the current trend.

Always bear in mind, divergence should be used as an indicator, not necessarily a signal to enter the market, as too many false signals are given. They do not appear that often, but when they do we need to be attentive as this could lead to a possible reversal that allows us to identify the move early on and make a large profits for a relatively small risk.

Once spotted, divergence identifies good trade setups that when confirmed by the use of additional trading tools give us high probability winning trades for low risk.

Summary

Even if you do not use an oscillator in your regular trading strategy it will prove invaluable in identifying divergence.
Monitor your highs and lows on the chart and compare them regularly with your oscillator.
Identify the correct divergence to determine possible market direction.
If you cannot identify the correct divergence rather stay out of the market until price and oscillator are once again in sync.
Regular divergence can help you identify a trend change early on that could result in large profits.
Hidden divergence can help you identify a continuation of the current trend that can also result in larger profits.
Divergence is not fool proof and will result in higher probability wins when used in conjunction with other indicators.
Add your trend lines to each new high or low on both oscillator and chart in order to easily identify divergence.

Divergence Type Price Oscillator Trade
Regular Higher High Lower High SELL
Regular Lower Low Higher Low BUY
Hidden Higher Low Lower Low BUY
Hidden Lower High Higher High SELL

Divergence Type	Price	Oscillator	Trade
Regular	Higher High	Lower High	SELL
Regular	Lower Low	Higher Low	BUY
Hidden	Higher Low	Lower Low	BUY
Hidden	Lower High	Higher High	SELL

Multiple Time Frames

2008-04-08T21:29:00.007+02:00

Up to now I have looked mainly at single time frames and trends based on that time frame. Many traders look at multiple time frame charts, sometimes with different indicators on each time frame which can lead to confusion.

The question is, what is the best time frame to trade?
Is there an advantage to choosing one time frame over another? Whilst opinions may differ, my feeling is there is a suitable time frame for each individual, based on the amount of capital he has available, probably his trading psych, and his time constraints.

A person with a minimal amount of trading capital won't benefit from trading daily or weekly charts or following analysts long term view of the market. There are a few basics that need to be considered when deciding what time frame is suitable for each individual.

Based on available capital, temperament or personality and trading time available we have to choose a trading time frame that best suites us.

That's not to say we must have tunnel vision and rigidly stick to that time frame. Using multiple time frames can add a new dimension to our trading. That does not mean watching 5 different time frames as that would probably just cause confusion.

When we consider the varying circumstances amongst the millions of traders who participate in the markets daily then I can only conclude that the reason there are literally thousands of trading strategies that seem to work for some but not all, is simply because we all have different personalities and temperaments. If it was one size fits all then there would probably only be one strategy available which would be a closely guarded secret that remained the sole preserve of a privileged few.

Time and again we find the perfect setup for our time frame and enter the market only to watch the market reverse before any meaningful profits are banked. We are quick to condemn that particular strategy and start the search for a new one. A review of the trade later shows that the larger time frame was actually heading in the opposite direction.

Had we done our analysis on the larger time frame and entered on a smaller time frame we would have a higher probability of success than just focusing on one time frame. The question then is what time frames to combine and how many? Mostly I use three time frames, daily for my long term trend, hourly for analysis and 15 min to enter the trades.

Provided there is sufficient difference for the indicators on the smaller time frame to oscillate back and forth without without every little move reflecting on the larger time frame, they can serve our purpose. Many analysts suggest the larger time frame must be four times larger than the smaller time frame. So some suggestions could be.
Multiple Time Frames

1 min	5 Min	30 Min
5 Min	30 Min	2 Hrs
15 Min	1 Hr	4 Hrs
1 Hr	4 Hr	Daily
4 Hrs	daily	Weekly

On the next 2 charts I have used a standard MACD with a setting of 12, 26, 9 without the histogram. The charting I use does not offer a 2 hr time frame, but we can look at today's trade starting round the European opening confirmed by the MACD cross on 30 min then entering short on a 5 min time frame. Click to enlarge.

As the 30 min chart had already signalled short the 5 min time frame became a higher probability trade in the same direction as the 30 min. We could also stay short until we had a cross of the 30 min to go long, which became our signal to exit the trade with around 200 pips profit. Click to enlarge.

Summary

Shorter time frames generally yield smaller profits and require smaller stops therefore less risk.
Shorter time frames allow traders with a small capital base to make better use of their margin.
Shorter time frames generally mean more trades and more spread paid to your broker.
Shorter time frames generally require more time watching the charts for potential trades and probably less time to analyse the market.
The larger the time frame, the larger the profit potential and stop loss therefore the larger the risk.
Larger time frames generally have larger price swings, causing traders with inadequate capital to risk more than they can afford and probably wipe their accounts out.
Larger time frames would mean less trades therefore less spread to pay, more time to analyse the market and would probably suit traders who don't have the time to sit and watch the charts all day.
Make it a habit to refer to different time frames
Choose a set of time frames to watch and only watch those, familiarise yourself with the market movement within those time frames
Don't confuse yourself by trying to watch too many time frames
Start your analysis by looking at the big picture.
Use the larger time frame to establish the trend, then analyse the shorter time frames for entries and exits.

As we can see there is no right or wrong answer, each trader must find a time frame he is comfortable trading, that won't cause unnecessary stress due to risking more than he can afford. There are pro's and cons for shorter and longer time frames.

Adding a new dimension of multiple time frames by strategising your plan on the higher time frame and implementing the trade on the lower time frame gives you an advantage over traders focusing on a single time frame. Multiple time frames should work with most indicators and offer a host of time frame choices for traders.

1 2 3 Trading System

2008-03-22T19:36:00.012+02:00

One of the first trading strategies I was taught when I started trading was the simple 123 pattern. Whilst I cannot trade every system I write about every day, the 123 system can give exact entries and tight stops.

The 123 trading system is a break out system where we label the current high or low point 1 the next high or low is point 2 and the pull back high or low is point 3. Our entry point for the trade is always the break of point 2.Lets look at a GBP/USD 15 min chart where I have Identified a number of trades based on the 123pattern.

I have labeled the 123 patterns and high-lighted the the first trade blue. The market broke short then retraced and made a new high. At this stage the market could have gone in any direction but when it failed to continue down past the previous low this was a good indication of a reversal but not a confirmation, the confirmation would only come at the break of point 2 provided the price does not go below point 1 of the pattern.

At the break of point 2 in our pattern the new trend was confirmed and we entered the trade long at 2.0312 with our immediate target the previous high in the market at 2.0390 about 70 pips above. The stop loss was placed just below 2.0239.

The risk reward ratio was not great on the trade at 1:1 but the profit target was achieved.

The Next trade, orange high lights we again entered the break of 2 at 2.0275 with a much tighter stop at 2.0312. The target on this trade the previous low at 2.0090. The down move stopped at 2.0098 just short of our target. The trade was closed when price broke above the high of the retracement 115 pips from our entry.

There was also a third trade, (Blue High Lites) as we can see the pattern is fairly common and can appear a number of times a week. The method can also be used effectively across all time frames.

As with all trading systems they can be more effective when used in conjunction with other indicators. A popular indicator to use with the 123 pattern is a 21 exponential moving average which I have added to the same chart. In this case we enter the market when the 123 pattern is confirmed by a break of the 21 ema.

We can stay in the trade until we hit a predefined target or until price breaks above or below the 21 ema which confirms the reversal. The initial stop loss is the same as the normal method.
The pink moving average line has been added to the same chart and confirmed all the above trades when price broke our point 2 it had also breached the 21 ema to give further confirmation of the trade.

Another effective indicator to use with the 1 2 3 formation is Bollinger bands. On the next chart I have added a standard Bollinger band. Using Bollinger bands we wait until the price hits or penetrates and outer band or or center line before breaking point 2.
Looking at trade 1 price penetrated the lower band before retracing and forming the high at point 2 then dropped again to form point 3 which was higher than point 1. When price broke point 2 our Bollinger bands started to widen further confirming the up move.

Trade 2 also penetrated the upper band before retracing and forming point 2. Point 3 stalled at the center band before breaking short. Our stop loss is the same as in the other methods but here our target can be the lower band or until we get a reversal pattern.

All the other trades are also confirmed with the Bollinger bands.

Summary

Exercise patience whilst waiting for the pattern to form
Only enter the trade at the break of point 2
Set Stop loss above point 3.
If using the 21 ema strategy then only enter the trade when price breaks the ema line as well as point 2 in the pattern.
If using the Bollinger band method price must first touch an outer or center band then reverse to form point 2.
The better trades will be when the entry is confirmed by the widening of the Bollinger Bands and a bounce off one of the center line of the band.

Dynamic Trendlines

2008-03-07T11:06:00.005+02:00

Scaling In for Extra Profits

Often when the market starts trending in a new direction it can be difficult to determine the full extent of the rally and know when to add positions to existing ones or enter new positions during the current rally.

By using Dynamic Trend lines to help us find entry points we can take full advantage of the rally. By dynamic I mean placing new trend lines as the market moves.

On the first GBP/USD 15 min chart I have drawn in the channel lines for the down run and will be looking for either a continuation of the down move or a breakout of the channel to go long.

As we can see the market continued down until it hit the lower support (blue line) established earlier and bounced before stalling temporarily at the top channel resistance line.

Once price broke through the channel resistance we had our first entry long at 1.9833 with our stop at 1.9800 below the channel line and about 10 pips below the last low.

The market rallied and formed a new high at 1.9966 before retracing. At this point I added Fibonacci retracements expecting price to drop to at least the .382 retracement before continuing the rally. As we can see price stalled round the 23.6 retracement area and the question was "where to enter should the rally continue?" and "how high will the market go?"

At this point we are able to add an up trend line (which becomes our support) and draw a channel line running parallel with the last high in the market. The top of the new channel becomes our possible target on the upside in conjunction with the Fib 1.618 target.

Click to enlarge.

On this next chart I have added my first Dynamic trend line which runs parallel to the top (blue) channel line. (For Meta trader users double click the Previous channel line and then drag it across to the new high it will give a new line at the identical angle to the first.)

Once price breaks above this new resistance we can scale in with a second lot or a new entry into the market at 1.9936 with our target still at the fib 1.1618 or the top of the channel line.

By repeating this process after each retracement we wind up with multiple entries in the market. As we can see the Dynamic Trend lines gave us seven entries into the market with the first giving us a return of 327 pips. Our stop loss would be the last low beneath each Dynamic Trend line.

Obviously we need to adhere to good money management principals and not overexpose ourselves in the market. I have not added the final profits but I am certain it would have more than doubled the original 327 pips.

The lower red channel line is the reversal point should price break below this support. Each new retracement and Dynamic Trend Line also becomes the new stop loss point for previous orders.Summary

Establish the original break out point.
Wait for a retracement to draw in the initial Dynamic Trend Line.
Scale in a second order
Place stops beneath the Dynamic Trend line and last low.
Repeat the process until the target is reached or the market takes you out on stop.

FX Active Liquidation

2008-03-05T19:37:00.005+02:00

FX Active Liquidation
Following the article and appeal I made on my fxtraderman blog earlier today another drama involving Forex scams in South Africa is about to unfold. FxActive a prominent Forex Market Maker in South Africa closed their trading platform to traders and fund managers under the pretext of system maintenance about six weeks ago.

No explanation was offered or notification sent to clients explaining the necessity for the closure or maintenance of the platform. (I wonder how many traders had open positions at the time of the closure possibly wiping out their accounts with margin calls.)

Attempts by investors to contact the company to ascertain the reasons for the closure have failed. Strangely the company still maintains offices and pay staff every month, one can only speculate that investors funds are being used to fund this extravagance.

Traders from all over the country are now reporting that they have been unable to withdraw their funds from the company. The excuses for non payment offered by the company range from "Audits" due to a pending takeover by a large European Trading Platform and the imminent sale of the company.

None of these excuses can be verified or have come to fruition and can only be regarded as tactics to stall investors whilst the company milks every last cent out of investors funds.

In recent years South African investors have been devastated by the closure of Forex Trading Companies. Leadergard the largest company a few years ago, closed owing investors three hundred million Rand or more. Recent scams in Durban involving Forex Direct CC, Tyraz Investments cc, and Inrex Forex relieved investors of millions of $'s

In every case the perpetrators of these scams have lived a life of luxury whilst the investors they have stolen from are left penniless. New laws governing Financial Advisers have been introduced by the Financial Services Board to protect investors from unscrupulous brokers, however the effect of these laws will take time before everyone is fully regulated.

As FxActive were the only Forex Trading Market Maker in the country, many South African traders had no option but to deal with them due to currency control regulations governing the amount of funds individuals are allowed to take out of the country.

Whilst I have no direct evidence of any fraud commited by any member of FxActive I can only speculate about the reasons for their demise.

As I was an active participant as a trader on the FxActive platform, I have a vested interest in the outcome of any pending Liquidation and possible criminal actions brought against the company. Unfortunately I am not optimistic of any reasonable outcome, and can only assume that FxActive will probably become another statistic of the greed and corruption that has been so prevalent in the Forex Industry in our country.

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