The Market Timers

There has not been any activity here on this blog for quite some time. Other pressing things.

But I will mention the launch of a new forum for currency traders.

Forex Traders Forum

Its open for all forms of forex traders. From long term fundamental traders to short term technical traders.

If your a trader you should go check it out and join in on some of the discussions. Share your trading strategies and we can all learn to be better traders. Let’s earn some pips!

Have beeen watching gold closely for the past few hours and watched as it broke above $480. I always enjoy watching as price breaks above important psychological price resistance levels. Seeing it live on or 5 minute or even one minute chart is pretty neat to watch.

Here is a snapshot of golds move above $480.
Click to Enlarge

We are happy to note that we have just opened an new trading account. We are departing somewhat from the stock markets we have been trading and are about to jump headfirst into the world forex. The account is offshore and we will be trading options on currencies and prescious metals.

Still playing with the new trading platform ot get familliar with it and paper trading options on the Euro and silver. When we are ready to commit to live trades we will be posting our results and experiences here.

The paper trades we have been practicing with have been very encouraging. Using our usual market timing techniques (support/resistance, candlesticks, trendlines, MACD, stochastics, and a little elliot wave theory) we are hitting the same success ratios as with trading stocks (75+% of the trades are profitable). We plan to mainly be buying and selling puts and calls for short term trades. The best thing about these options are the leveraged volatility compared to the actual underlying currency or commodity. A 2% price move in the Euro can turn into a 50% move in the options.

A slightly different risk management approach must be employed to accomidate these types of large percentage swings. Typicaly we had been trading stock indexes through ETFs (exchange traded funds). With this type of trading we were often 100% invested in a particular position. Stop losses were used to exit loosing trades quickly before losses exceeded 3 to 5%. This was an exceptable procedure with the type of trading we were doing. But cannot be used with leveraged options.

The large price swings in the option premiums can occur over very short time frames. A single position could run into a 30, 40 or 50% loss in minutes. To counter this we are employing some of our poker skills. In poker it is nessecary to have enough chips to handle the steady small losses till you hit that one big hand that pays out more than the lossing hands before it. With options trading we are only risking a portion of our capital in each trade. Should one trade (or 25% of trades) go south quickly we still have plenty of capital (ammunition) to allow us to try again. The volatility of options premiums allows very large gains on the succesfull trades so with our typical 75% succesful trade ratio our equity curve should nicely.

We will be also employing a stepped form of compounding. As the equity in the account reaches predetermined levels we will then step up the size of individual trades. This will help control the risk of larger drawdowns as trade sizes increase. Again this ensures there is adequte capital to handle losses.

Thats our strategy as it stands now. We will continue to get familiar with the trading platform before we begin our first trade. The account is open but no funds have been transfered yet. Perhaps in a week or 2 we will enter our first trade.

Will keep you all posted.

Elliott Wave International, the premier resource for education and market forcasting via Elliott Wave analysis, is free this week. You should take advantage of it. Their reports are extremely enlightening on short, medium and long term trading opportunites for stocks, currencies, indexes and commodities.

Use this link to check it out. Elliott Wave International Free Week

Wave theory has been the most importnat tool in our success at trading all sorts of markets.

The S&P 500 broke through 1180 pretty easily today. So much for our thoughts of another bounce. Next support level lies at about 1160-1165 area.

Last weeks bounce off the 1180 level, though strong, was very brief. The S&P 500 has steadily declined back down to near this support level. Indicators are hovering at oversold levels indicating another bounce may come soon as this support level will not be broken easily.