Traders Mag GMBH August 2013

Interview: Ralph Acampora Godfather of Technical Analysis P.
72
08
13
ries:
e
S
w
Ne
ading
r
T
e
h
T
al
Journ
P. 64
Your Personal Trading Coach

Nr. 08, August 2013 | www.tradersonline-mag.com
Trading with
Seasonalities
Opportunities for Profit in
August with the EUR/USD
and Gold P. 20
How to Enter a
Trade Before the
Big Move Starts
TRADERS Ihr
Yourpersnlicher
Personal Trading
Tradingcoach
Coach | |www.tradersonline-mag.com
www.traders-mag.com
The Volatility-Breakout
Strategy P. 56
Strategies to Give You

an Edge in the Markets
Trading According to Plan
P. 6
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EDiTOriAL
www.tradersonline-mag.com 08.2013
Lothar Albert
Editor-in-chief and publisher
The Grass is Always Greener on the Other Side ...

A house with a garden is a nice thing if it werent for the neighbours lawn. it just
so happens that the latter somehow is always greener than your own. And if it is not
the colour of the lawn, then it is the size of the house. Or it is the neighbours car
thats more expensive. Or his wife is more beautiful.
you will have noticed by now what im driving at. Sometimes it just looks as though
other people are simply better off and you are the only one to lose out. This is a
feeling that may also surface in trading, especially when you communicate with
other traders via social media. After all, that is where everybody posts their trades
and opinions, which means that they keep track more or less consciously of
how those positions might have developed. And soon enough, youll find yourself
just focussing on other peoples winning trades the classic the-grass-is-greener
on-the-other-side syndrome. Any examples? Sure, i have three of them right here,
and you can follow up each of them with this sentence: And ive lost out again:
Trader X was right to go long on EUR/USD, hes already 50 pips ahead now.
Trader Ys third successive short with gold that is way in the black.
Trader Z has again managed to enter just prior to the big move.
you know what? These thoughts are just nonsense and nothing but a product of your
imagination since youre having a bad day and keep thinking negatively. So you dont
have to feel sorry for yourself. The grass is not greener on the other side. Or maybe
just for the odd day or week when there is more sunshine there or your lawn happens
to be waterlogged figuratively speaking. But dont let that impress you. Long term, the
grass will still be growing best if you consistently deal with all the necessary work that is
required. The others also have bad days and may have to struggle with problems you know
nothing about. Stop seeing only what others have, and make sure that you also see what
they dont have. All of a sudden, your own lawn will then look a whole lot better.
you have decided on a very specific trading style and thats what you will need to
keep focussing on. On good days and bad. And by the way, thats no different from
the way it is with your home, car, and wife.
Good Trading
TABLE OF CONTENTS
72
TABLE OF CONTENTS
August 2013
18
24
COVERSTORY

To trade systematically means much more than just placing
stops or following chart signals. For a trading plan to work in the
long term it requires us to know our own edge when competing
with other market participants. In this article, pro trader Simon
Betschinger shows how specific trading strategies can be
derived from a theory about the functioning of the markets.
Traders can use those as ideas for their own trading plan.
News
Find the latest notes and
announcements from around the world
of trading in our News section.
TOOLS
28 New Products

INSIGHTS
14 New US-Dollar Indices

Jose M. Pieiro introduces several US dollar indices that have

been created with the goal of finding the most accurate and
representative valuation of the US dollar.
The Latest Trading Technology
30 Web Review

www.kitco.com
34 Software Review

MetaTrader Trading Signals
18 What Investors Need to Know about Japan
36 Software Review
Clem Chambers argues that inflation and the Bank of Japan

point towards the countrys economic decline.
20 Trading Seasonalities Part 2

We show a short idea for EUR/USD and a long idea for gold.
VectorBull and ForexBull
40 Book Review

Kathleen Brooks on Forex

by Kathleen Brooks
22 China International Online Trading Expo 2013
42 Appview
The CIOTEXPO is the largest forex and options trading expo in

China and Asia. It will take place on 13th and 14th September.
Trading Diary-App
TABLE OF CONTENTS
PEOPLE
70 The Pros Process

Part 11: Gregory W. Harmon
72 Ralph Acampora

Father of Technical Analysis

Ralph Acampora is a living legend
among technical analysis with almost
50 years of market experience. In our
interview, he explains how to correctly
interpret the constant recurring cycles
in the markets.
Publisher
Lothar Albert
Subscription Service
www.traders-mag.com;
www.tradersonline-mag.com;
abo@traders-mag.com; Tel: +49 (0) 931 45226-15
Address of Editorial and Advertising Department
Barbarastrasse 31a, 97074 Wuerzburg
STRATEGIES
46 Part 3: The Long Pullbacks Strategy

Larry Connors and Cesar Alvarez introduce one of the most

robust quantified equity pullback strategies published. This is a
strategy which will likely become a go-to strategy for you.
52 The Self-Hedging Strategy

Options can be applied as an alternative to direct investment

with their leverage, though, being used to limit risk rather than
increasing it. Alexander Mantel shows how it works.
56 The Volatility Breakout Strategy

David Pieper shows how you can open a position with the help
of the historical volatility before a big move starts.
BASICS
60 The Psychology of Trading Part 2

In part 2, Norman Welz explains among other things how the

egoistic brain works and why successful trading requires a
change in personality.
64 Trading Journal

Thomas Bopp presents a call-write trade in the FTSE-100.
66 Part 2: The Traders Technical Arsenal

Mustapha Azeez discusses the ADX, the ATR, and the

Awesome Oscillator (AO); as they work in the Meta Trader,
which continues to increase in popularity.
Editor-in-Chief
Lothar Albert
Editors
Prof. Dr. Guenther Dahlmann-Resing, Corinne
Endrich, Marko Graenitz, Lena Hirnickel,
Sandra Kahle, Nadine von Malek, Rodman
Moore, Stefan Rauch, Katja Reinhardt, Karin
Seidl, Bjoern Sommersacher, Tina Wagemann,
Christine Weissenberger
Articles
Cesar Alvarez, Simon Betschinger, Thomas
Bopp, Steve Burns, Clem Chambers, Richard
Chignell, Larry Connors, Alexander Mantel, Azeez
Mustapha, Keyur Panchal, David Pieper, Jose M.
Pieiro, Norman Welz
Pictures
www.fotolia.com
Price data
www.captimizer.de; www.esignal.com; www.
metaquotes.net; www.metastock.com; www.
tradesignalonline.com; www.tradestation.com
ISSN
1612-9415
Disclosure
The information in TRADERS is intended for
educational purposes only. It is not meant to
recommend, promote or in any way imply the
effectiveness of any trading system, strategy or
approach. Traders are advised to do their own
research and testing to determine the validity
of a trading idea. Trading and investing carry
a high level of risk. Past performance does not
guarantee future results.
2013 TRADERS media GmbH, Barbarastr. 31a,
D-97074 Wuerzburg, Germany
coverstory
Strategies to Give You an Edge in the Markets

How do you actually trade according to plan? Trading systematically means far more than merely setting stop prices or
following technical chart signals. For a trading plan to work long term, it is necessary to know and consistently exploit your
own edge when competing with other market participants. Professional trader Simon Betschinger shows us in this article
how a theory about the workings of financial markets will first lead to specific trading strategies which can subsequently be
integrated into a complete trading plan.
This article is divided into two parts:
to the profitability of recurring trading patterns being
1. Recognising your trading edge
destroyed. The following example explains why this is.
2. Suitable strategies for your trading plan
Suppose a classic breakout to a 20-day high had a positive

expected value. In that case, financially strong market
Part 1: Recognise Your Trading Edge
participants would position themselves right before the

breakout signal and sell their shares again as soon as
The Scramble for Yield
the actual signal is triggered and other traders jump on
There is never-ending competition in financial markets
the bandwagon. Sooner or later, this race for yield will
between intelligent and financially strong players all of
destroy any profitable trading pattern emerging from the
whom share the single goal of making money. If we want
data series. Anyone who claims that the opposite is true
to give these people a face and we are exaggerating a bit
should be able to come up with appropriate trading results
here then it is the most talented mathematicians from
to prove their point, otherwise such a claim will, soon
Princeton who, together with the smartest physicists
enough be debunked as a simple lack of understanding.
from Stanford and top-tier Harvard graduates, gathered

in the trading department of an investment bank or hedge
Random-Walk Markets
fund, devoting all their creative willpower to solving the
The consequences of this competition are obvious. If we
financial-market puzzle. This competition is bound to lead
tried to trade one of the major markets such as EUR/USD
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coverstory
personal edge here. Each profitable
F1) Lonely Warrior Signal
pattern that one might find via

backtests and infinite attempts at
optimising a system, is subject to a
half life that is less than the time it
would take a system trader to really
work profitably with such a pattern.
So when it comes to trading an
index or a currency pair, you will be
competing in undoubtedly efficient
markets and Eugene Famas famous
conclusion that we are dealing with
a random walk here, proves true.
Disambiguation: The random-walk
theory says that the courses of stock
prices only can be described by
random processes.
Its not often that candles are formed completely outside the Bollinger bands. This is frequently an indication
that there is an unjustified exaggeration and a backlash is imminent.
Source: www.traderfox.de
Why You Still Have a Chance

The one way of winning the game is
to shift the competition to situations
that are not covered by all the
on the basis of chart patterns without taking into account
statisticians with their sophisticated software systems.
any additional information, we might as well be competing
The first move is headed towards equity markets, which
against Usain Bolt in the 100-metre dash. Our chances
resemble a zoom-in on details. Youll be leaving the level
of success are the same in either case. Throughout the
of anonymity and will raise the curtain on a play that
world, the most powerful financial-market players are
includes a wide variety of characters who breathe life
busy studying the EUR/USD. There is no such thing as a
into the stock market. No computer program in the world

can make a judgment on whether,
for example, the latest Samsung
Galaxy phone has the potential for
F2) Expansion Down Gap
competing with the iPhone. However,

human beings can. They can form an
opinion and wait for situations where
the market and their own opinion
are in complete sync. This means
that the stock is developing exactly
according to its own price scenario.
These are the moments where you
should
be
following
the
trends
in an aggressive and determined

manner. The second move is to trade
whenever the trading algorithms of
statistical traders pause to adapt to
new circumstances. That is the case,
for example, right after any explosive
If right at the start of trading there is selling pressure in the market and significant price losses have occurred
in advance, this is often an indication of irrational and emotional behaviour on the part of other market
participants.
news that suspends all the statistical

rules of behaviour in one fell swoop.
Or whenever prices move away from
the statistical norm.
Coverstory
Being Thrown off Balance
to comprehend why. We know traders who are very
Analysts are good at evaluating long-standing business
successful but who find it infinitely difficult to explain
models. However, their judgment is regularly flawed
their strategy. It has taken the writer of this article a long
when it comes to capturing disruptive changes. Whenever
time to understand exactly what his edge is. For most of
the financial markets are hit by new information that
the trading day you sit in front of the ticker and spend
describes a drastic change be it, in the simplest of
your time watching prices. The trigger for a trade is then
cases, significant changes in sales and earnings forecasts
usually a well-known behavioural pattern that you can
market equilibrium will be upset for a short period of
eventually narrow down and describe. Traders arrive at
time. The chains that had made it a slave of the market
experiential data by observing recurrent patterns and
will be cast off the stock. The new equilibrium will not be
learning what happens subsequently. If this pattern then
found immediately. There will be rapid price movements
occurs again, the experiential data can be accessed and
and a perceptible sense of general uncertainty. It may
implemented.
take several weeks for the stock to be revaluated and
A pattern may be much more than just a technical
the laws of capital-market theory to be applicable again.
chart formation. It may include a huge amount of
Such sudden changes in the calculation bases are an
information such as corporate development, developing
opportunity for attentive traders who want to gain an
news, overall market situation, currency movements, and
advantage.
so on. And this results in what accounts for successful
Lets stay with the stock markets. Even stocks with
trading: Actually, as a trader you will just wait for patterns
market valuations in the billions are not yet subject to a
that you know inside and out to be working well. In the
hundred per cent market efficiency where each player
simplest of cases, such a pattern is, for example, a new
and each individual decision vanishes in the statistical
52-week high, a simple trend-following signal. It does not
background noise made by thousands of decision-making
work throughout the entire year, but does an excellent
processes. In individual stocks, the fundamental data-
job on an estimated 20 per cent of all trading days. For
based decision of a fund or large investor to stock up on
practical trading, that means analysing whether follow-
positions may lead to noticeable price changes. A stocks
up purchases are increasingly made after new highs
relevant information base is also much wider than, for
or whether the breakout movement peters out. If the
example, in the case of an index. The euphoric coverage of
bottom line is that there is market sentiment that rewards
a revolutionary technology may lure thousands of traders
breakouts to new highs with further price gains, you will
into the stocks of a particular sector. No computer is
buy this pattern as a trader. If not, you just wont.
capable of recognising the complexity

inherent in the fact that it is sometimes
many small traders who fall victim
F3) Momentum High
to a fallacy. Astute traders are quite

capable of doing just that and thats
exactly why they have an edge over
statistical traders. By reading stockmarket reports the former realise, for
example, that an expansion 52-week
high was triggered by nothing but
unrealistic expectations. And at that
very moment, the risk/reward profile
will shift away from the expected
value of a roulette game towards an
edge that can be exploited for a short
period of time.
What Makes the Best

Traders so Successful?
Its one thing to make money in
the
markets,
its
another
thing
A momentum high break is the break of a distinctive point in the chart, which is the focus of many traders.
coverstory
How Profitable Signals Keep Destroying Themselves
time to systematically trade patterns with a temporary
The profitability of patterns in the stock markets is subject
excess return before other market participants anticipate
to an evolutionary process that follows the rules of the
and destroy such.
efficient markets hypothesis. It starts with a pattern

achieving an excess return in a conspicuous manner.
Insights for the Trading Plan
For example, breakouts to new highs are accompanied
The profitability of trading patterns is comparable to an
by strong follow-up profits. This excess return will be
evolutionary process. You need to have the opportunity
observed by more and more market participants who
to conduct a statistical evaluation that can first clearly
then begin to trade this pattern. Initially, this may even
identify patterns and, secondly, immediately alert you
enhance profitability, but eventually the trend will be
as soon as a positive expected value is developing. The
reversed.
trading patterns that are evaluated need to represent
There are two adjustment processes here. First, too

many traders who want to achieve short term gains, have
distinctive situations from which significant changes

have emerged in the past.
opened positions upon the emergence of the pattern.

The excess return starts to shrink and the gains that have
Part 2: Suitable Strategies for Your Trading Plan
been made on the basis of this pattern will be realised

even earlier. Secondly, some market participants will
Lonely Warrior (Short Version)
very soon identify the trigger for the pattern marking the
This trading signal has a history that is easy to remember.
beginning of the excess-return phase. Market participants
A warrior who has strayed too far from his own lines, at
will then naturally anticipate this signal in advance, that is
some point finds himself alone and abandoned in enemy
systematically accumulate a stock one per cent before the
territory and sees his chances of surviving the enemy
breakout to a 52-week high only to sell the shares again
attack on his own dwindle rapidly. He has no choice but
immediately. This evolutionary behaviour pattern of chart
to let himself fall back until his own troops have caught
signals and more complex trading patterns explains, on
up with him again.
the one hand, the nature of efficient markets. On the other
Applied to the stock markets, the enemy territory
hand, it serves to open a door: Those who are the first to
is defined as the price territory outside the Bollinger
understand which trading patterns are currently working
bands. The Bollinger bands do an excellent job here to
well, can use this knowledge edge for a short period of
indicate whether prices move abnormally high or low.

The signal Lonely Warrior requires
that a complete candle was formed
above the Bollinger bands or this
F4) Expansion 52-Week High
is the second version of the signal

that 90 per cent of a candle with a
trading range of more than three per
cent was formed above the Bollinger
bands. This candle is then the lonely
warrior that the trading signal owes
its name to.
The short position will be opened
the following day, once prices have
fallen below the days low of the
Lonely Warrior candle. This risk
tolerance for the trading position
should be set at a relatively narrow
range between two and four per cent.
If a stock continues to rise despite
this strong overbought condition,
An expansion 52-week high is no ordinary 52-week high. It is a high that was formed in the wake of a strong
short term price expansion.
10
that usually indicates a systematic

accumulation, which could possibly
have fundamental reasons.
Coverstory
Exact Rules Governing the Lonely Warrior Short Signal
Exact Rules Governing the Expansion Down Gap Long Signal
1. Yesterday a complete candle was formed above the
1. On the last five trading days, the stocks share price
Bollinger bands. Alternatively, a candle was formed
lost more than three ATRs.
with a trading range of more than three per cent with
2. Today, a supply overhang weighs on the stock right at
90 per cent of the prices being outside the Bollinger
the opening. The stock opens with a loss of more than
bands.
1.5 per cent.
2. The signal trigger is yesterdays daily low. Once the
3. If there isnt any extremely bad news (for example
price falls below the low, a short position will be
hefty profit warning), a long position will be entered
opened.
immediately after the opening.
3. The trade has a stop with a small risk tolerance of two

to four per cent.
4. The long position is given a risk tolerance of two to

four per cent.
Expansion Down Gap (Long Version)
Momentum High Break (Long Version)
Emotions are rarely a good counsel when making trading
There are certain points in a chart that almost every trader
decisions. In other words, if a wild herd of panicky market
keeps an eye on. These certainly include the local highs
players give away their shares, that will be the right time
or local lows that are V-shaped. Many traders place their
to enter. Panic is an emotion that needs to mature on
stops at such prominent points or buy pro-cyclically into
the stock market. It is like a good meal that only reaches
a position quite in the spirit of the classical literature on
its full flavour after a long period of simmering. At the
such charts. Any experienced trader will often have had
beginning of a price panic there are usually moderate
the experience of prices just once for a tiny fraction of
losses. These will then be more severe, and at some point
time taking out such a point as described above only
there will be a double-digit loss on the books within very
to then move in the opposite direction. This kind of price
few days, which makes shareholders incredibly nervous
behaviour is no accident. It is the outcome of a market
and causes them to make irrational decisions. In terms
process that lets as many market participants as possible
of our signal, the irrational decision is the unlimited sale
go the way of the worst pain.
right at the start of trading.
Place stop-loss orders! Thats what everybody
Translated into technical analysis, this results in the
keeps preaching all day long in stock-market magazines,
criterion that the share price must

have fallen sharply within a short
period of time. More precisely, the
prerequisite for the expansion down
F5) Pivotal News Point at Tesla Motors
gap signal is that the price loss of

the last five trading days is greater
than three ATRs. If this downwardmovement criterion is met, one will
have to wait and see whether there
is a supply overhang right at the
opening of the next trading day or
whether there is a down gap. Such
a supply overhang could be an
important indication of emotions,
that is irrational actions. That will
be the right time to open a long
position. Prior to that, it is absolutely
necessary for the news ticker to
be checked. If there is any bad
news such as a profit warning, for
example, it will be better to refrain
from opening a position.
For quite a while, the electric cars made by Tesla Motors were taken seriously by German car manufacturers.
But independent test reports confirmed Teslas enormous range of up to 500 kilometres. After Tesla Motors
then announced that sales of its Model S had been well above expectations, there was no stopping the stock.
Incidentally, Tesla Motors sold more of its Model S cars in the first quarter of this year than Daimler did with
its S-Class.
11
coverstory
in broker webinars, and in trading literature. Of course,
signal high momentum break there. It is not a signal
minimising risk is a core component of successful trading.
that should trigger an automatic trading reflex in a trader.
In practical reality, wrongly placed stop-loss orders are
Rather, it is a stock screening which provides interesting
the main reason why many traders are unsuccessful.
charts and prompts you to get to the bottom of the cause
Those who set their stop prices in such a way that they
of the price movement. If the price increase leading to the
are triggered by the everyday, random price noise, might
momentum high break was triggered by good corporate
as well go to the casino. Whoever places their stop-loss
news, the signal should rather be traded long. If, however,
orders at distinctive points in the chart which virtually
the price increase is purely driven by recommendations,
all traders are watching, is playing the part of a herring
industry strength or traders, a counter-cyclical positioning
just waiting to be eaten by a shark on the prowl. After
is a good choice.
all, it is as plain as day that hedge funds or institutional

traders will start testing a distinctive point in the chart if
Real-time hit rates also are a good guide in determining

whether the market currently favours cyclical breaks.
it can be assumed that that will be followed right away by

automated and unlimited orders.
Exact Rules Governing the Momentum High Break
The momentum high chart pattern is defined as

a local high that stands out, V-shaped, from the price
1. A momentum high was formed in the last eight
performance. To ensure the V-shape, it is assumed that
weeks. There will be such a high if in the five days
in the five days prior to the momentum high, there was
prior to the high an increase of at least 2.5 ATRs
an increase of at least 2.5 ATRs and in the five days after
occurred and in the five days after it there has been a
the momentum, prices must have fallen by at least two
price slump of at least two ATRs.
ATRs. If such a momentum high is broken, there is the
2. Today this momentum high is broken.
Expansion 52-Week High

A
F6) Real-Time Hit Rates
new
52-week
high
is
the
standard signal of every trendfollowing trader and rightly so

because there is no doubt that it
shows that the bullish forces in the
corresponding stock are strong.
Any stock whose value goes up
dramatically, is bound to go from
one 52-week high to another 52week high in its inexorable upward
movement. A trivial insight? Not
necessarily, if one draws the right
conclusion. Anybody watching all
stocks on a daily basis that have
advanced to a new 52-week high,
can be sure to have all the future
hot stocks (those whose prices
keep soaring) on their radar. It is
important now to identify those
stocks where the new high might
be the technical precursor of a
fundamental revaluation process
much like prior to a tsunami the
water will recede once more before
Real-time hit rates are a tool that informs traders about which signals currently work well on the market.
12
forming that big towering wave.

The expansion 52-week high
is no ordinary 52-week high but
COvErSTOry
one that is accompanied by strong price momentum.
Simon Betschinger
We are looking for situations in the chart that show a

strong rally momentum in the immediate run-up to a
Mr Simon Betschinger holds a masters degree in

economics and has been trading since 1998. He is a
partner and founder of TraderFox GmbH (www.traderfox.de), a real-time stock-market software program for
the systematic trading by chart patterns. In addition,
he trades with a real-money portfolio on the trading
portal Master Traders (www.mastertraders.de).
new 52-week high. It is as though the chart is screaming,

Look here, there is something happening here. If
screened for on a daily basis, the chart pattern only
occurs for a small number of stocks. These are the
simon.betschinger@mastertraders.de
ones that are worth doing more in-depth research on.

In particular, the question should be raised whether
the strong momentum is triggered by pivotal news or
a euphoric sentiment in a particular sector. In the latter
Apples iPhone was launched and the first gigantic
case, counter-cyclical positioning might be promising.
sales successes were achieved, most analysts probably
If corporate news was published, downright forcing a
suspected that Nokias days were numbered for the time
revaluation potential, a long position will be the logical
being. But virtually no analyst dared at the time to utter
conclusion.
this insight immediately. It takes time for new realities

to be accepted. This is shown in the stock markets in
Exact Rules Governing the Expansion 52-Week High
periods of strong outperformance or underperformance

of shares following pivotal news.
1.
Today, a new 52-week high is reached.
2.
The price increase for one day is greater than 1.4
The Exact Rules Governing the Pivotal News Point
ATRs. Or: The price increase since two days ago is

greater than 2.4 ATRs. Or: The price increase since
1.
Today, a news item is published that at a stroke

throws out the existing calculation bases regarding
three days ago is greater than three ATRs.
the future profits of a company and outlines a
Pivotal News Point
new development path that in this shape has not
Contrary to all the nonsensical claims usually made by
previously been considered possible by most market
market players worldwide who have just been taught
participants. The first price after publication of the
a bitter lesson by Mr Market, stock quotes have, in the

long run, always something to do with the fundamental
development of the company. Share prices will follow
news is the pivotal news point.

2.
Buying starts immediately after the publication of the

pivotal news.
the trend of corporate profits, and from a long term

perspective market values originate on a par with
Your Next Few Steps
increased profitability. It is no coincidence that many
You should take the time to think at length about whether,
strong upward trends are initiated after the publication
objectively speaking, you have an edge in the markets,
of company news.
and if so, what exactly it is. In the long term, this criterion
Whenever breaking news is thrown into the market
is the basic prerequisite for success in the stock market.
system, this sets into motion a chain of decision-making
Thereafter, make a trading plan in which you explain your
processes to be engaged in by market players. Will the
strategy in detail and respond to all contingencies in the
new realities match our own expectations? If not, trades
form of scenarios how to proceed when you are winning
will be made. An increase in the earnings forecasts,
and how do you act in the event of a loss, what to do with
for example, may lead to an investment-fund analyst
surprising news, and what if there is a sudden market
presenting his new target-price prediction at a meeting
crash? Anything can happen in the markets, and you need
and the decision being made to build a significant position
to have a ready answer to everything. Otherwise, there is
in the double-digit millions.
a danger of you having to respond at short notice, deciding
Whenever the new realities emerging after pivotal
emotionally, and making exactly the wrong decision in
news pulverise long-held opinions and ideas, the
the heat of the moment (which other traders who are
capital-market players are deprived of their calculation
better prepared will benefit from). Professional market
bases. People and, more importantly, management
participants have worked intensively ahead of time to be
structures in companies are such that opinions that have
prepared for all eventualities and when it matters know
long been voiced cannot be revised overnight. When
just what to do and so should you.
13
insights
Which Index Should Traders Use?
New US-Dollar Indices

Determining a fair valuation for the US dollar, or any other currency, has proven to be a difficult task. Several US dollar indices have
been created with the goal of finding the most accurate and representative valuation of the US dollar. However, considering the many
international currencies competing in the global marketplace, dollar indices appear to disregard an important piece of the puzzle.
The global consumer-based society is accustomed
the value of the US dollar against a basket of six foreign
to using a base currency for all transactions. People
currencies (euro, Japanese yen, pound sterling, Canadian
instinctively use their domestic currency unless they are
dollar, Swedish krona, and Swiss franc). Unlike two of the
frequent travellers or engaged in international commerce.
more recently-created dollar indices, the USDX is heavily
The same denominator is being used, automatically
skewed towards the value of the euro. The weight given to
making life much easier. Apples never have to be
each currency was derived from their share of US foreign
compared to oranges.
trade back in the 1970s. This index has only been updated
However, currencies also change in value. That value
once, in 1999, when the euro was adopted. Several
is determined in the foreign exchange (forex) market,
European currencies were replaced by the single currency,
which allows, for instance, a comparison of the euro to
which now has a 57.6 per cent weight on the index.
the dollar. The Euro-Dollar could rise in value but how
The IC E takes pride in the stability of the index despite
would one answer the following question: Is the Euro
having maintained the same trade-weights over the
strengthening or is the US dollar weakening?
years. The USDX matches relatively close to the Federal
The two main variables for formulating a dollar index
Reserves own Trade Weighted U.S. Dollar Index, leading
are the selection of currencies and the weights assigned
the ICE to argue that trade flows are not a major driver
to each. The standard US Dollar Index, also known by its
of the Dollar Index. The USDX allowed traders to use
ticker symbol USDX, has been in use since March 1973
the index for trading purposes whereas the Feds index
when created by US commodity exchange operator
was an after-the-fact index based on annually changing
IntercontinentalExchange (ICE). The USDX measures
trade weights.
14
insights
Trade-Weighted vs. Equal-Weighted
a more even measure of the US dollar relative to the
The creation of new indices in recent years has mostly
rest of the world by including over 90 per cent of USAs
resulted out of a need to give greater weight to other
international relationships and a more representative
currencies. Although the euro and the dollar account
benchmark. This equal-weighted index includes eight
for most of the trading volumes in the currency market,
currencies, the Australian dollar, Canadian dollar, Swiss
a heavily euro-weighted index may leave out some very
franc, Chinese renminbi, the euro, the Sterling pound, the
valuable information. Such an index does not reveal what
Japanese yen, and the New Zealand dollar.
currency is the driving force behind the index. For example,
Finally, an index was created that reflects an emerging
a rising US Dollar Index does not reveal whether it is driven
currency. However, there is the problem of Chinas
by a rising US dollar, a falling euro, or a combination of
currency not being a free-floating currency.
both. Giving more weight to other currencies in the basket

could help investors figure out whether the US dollar is
Wall Street Journal Dollar Index: A Volume-Weighted Index
really driving the change in the US dollar index.
Just one month later, the Wall Street Journal announced
The feeling that the USDX was outdated has led the
its own Dollar Index to provide a more precise measure
CME and Dow Jones to unveil their new dollar index in

June of 2010. They created the Dow Jones CME FX$INDEX
as the basis of a new futures contract. Compared to the
F1) Comparison of US Dollar Indices (First Half of 2013)
USDX, this index replaced the Swedish krona with the

Australian dollar and assigned different weights to reflect
the most frequently traded CME currency futures and the
current economic realities as indicated by the Feds data
on world trade.
Nonetheless, the Dow Jones CME FX$INDEX is also
heavily skewed to the euro. Four of the eleven futures
contracts that make up the index are based on the euro,
which in itself has a larger standard contract size. The
investing community may have remained unsatisfied
as dollar indices with equal weighting for currency pairs
later emerged.
The Creation of Equal-Weighted Dollar Indices

The Dow Jones FXCM Dollar Index created in 2011
appears to be an attempt to find a solution to the dilemma
of finding a better measure for the US dollar. This index
measures the US dollar against an equal-weighted basket
of the four most traded currencies: the euro, pound, yen,
and Australian dollar. As such, each has a 25 per cent
weight. When traded against the US dollar, these are the
four most liquid currency pairs in the world.
The creators of this index claim that it was formulated
to address the major shortcomings of the older USDX and
was intended to be more relevant, tradable, and easier
to use than existing dollar indices. However, this index
may be oversimplified as it leaves out many important
currencies.
In June of 2012, FTSE and Crex Group decided to
launch their own index, claiming there was a need for
a new USD index that incorporates Chinas renminbi
currency as it becomes more prominent in global trade.
Their FTSE Curex USD G8 Index was aimed at providing
Sources: research.stlouisfed.org, cnbc.com, wsj.com, finance.google.com
15
insights
of the value of the U.S. dollar, an essential benchmark
commonly-used benchmark to measure the dollar has
for traders and corporate treasurers who need to discern
not emerged.
the true measure of investing abroad or domestically.

They highlighted that their methodology sets it apart
Example of Dollar Index Shortcomings
from the rest by basing the weights of seven currencies
By looking at recent trends in the US dollar, one can make
on forex trading volumes as reported by the Bank for
a comparison between commonly-used US dollar indices
International Settlements. The use of trading volumes
and the performance of the US dollar to other currencies.
aims at measuring the right relationship between
From April to mid-June, three major US dollar trends
currencies.
can be detected. In the first trend, from April 1st to May
Whether to use forex trading volume or international
1st, the US dollar was bearish versus most currencies,
trade data is debatable. By using forex trading volume,
with a few exceptions. This was followed by a period
the euro weighs about 41 per cent of the WSJ dollar
of remarkable US dollar strength from May 1st to May
index compared to 57 per cent for the DXY. However,
22nd across all currencies, developed and emerging
this index may also be too skewed towards the euro
alike. Standard US dollar indices did a fairly good job of
in a global economy where emerging markets have a
reflecting those trends.
rising stake.
The third period presents a discrepancy. That

period was characterised by strong dollar strength
Exchange-Traded Funds Search for a Perfect Dollar Index
versus emerging currencies and weakness versus the
Many currency ETFs (exchange-traded funds) were
majors. However, the US dollar indices very closely
created in late 2007 ahead of the financial crisis to
match the dollar weakness seen in the majors and
capitalise on the growing role of emerging markets.
disregard the emerging country currencies. This
With the growth of the ETF market, many investment
discrepancy is visible in the chart. The red-shaded
banks tried to develop their own products that
lines represent dollar weakness versus the majors
tracked the performance of the US dollar versus other
and the green-shaded lines represent dollar strength
currencies. Most of the time, however, these can be
versus emerging currencies. The black lines, which
divided into developed and emerging market funds.
represent the dollar indices, should be somewhere
While there is an abundance of different combinations
closer to the middle. However, they are closely tied to
and tradable products, a major reference or a
the red lines.

The
shortcoming
of
the
dollar indices is that they lack
F2) Divergence of US Dollar Strength against Majors and Emerging Currencies
any indications of dollar strength,

although the dollar was remarkably
strong versus emerging currencies.
Conclusions
A broader dollar index would have
helped capture the dollar strength
that was not reflected on the popular
indices. Emerging markets play an
important and growing role in the
global market; however, they have
yet to make any substantial impact
on the commonly-used measures of
the US dollar.
As seen above, many dollar
indices
The third period presents a discrepancy. It was characterised by Dollar strength versus emerging currencies
(green lines) and weakness versus the majors (red lines). However, the US Dollar indices (black lines) very
closely match the Dollar weakness seen in the majors and disregard the emerging country currencies.
Source: www.fxmania.com
16
have
been
created,
especially in recent years with an

increasingly
globalised
economy.
Although countless of variations

have been created, a popular broad
iNSiGHTS
dollar benchmark has not emerged. Some tools are not
Jose M Pieiro
commonly or publicly made available by data vendors.

Perhaps, the right US index has not been developed yet.
Jose M Pieiro started in the forex industry

in 2002 as an Operations Specialist and then
Compliance Officer for FXCM in New York when
the online retail forex market was still getting off
the ground and expanding rapidly. He has spent
the last seven years working for Web Financial
Group (WFG), based in Madrid. He is now forex
analyst for WFGs forex website, fxmania.com.
While the main US dollar indices are fairly accurate

in measuring the direction of the US dollar, the timing
and the size of the moves can vary significantly. The
Federal Reserves broad trade-weighted dollar index is a
much more complete index as it includes 26 currencies,
all weighted according to trade data. In comparison to
the other indices, this index does a better job of valuing
the dollar because it includes a fairer representation of
disregard an important part of the global economy in
emerging currencies, which play a growing role in the
measuring the value of the USD.
global economy.
As can be seen on Figure 1, all indices follow the same
According to the International Monetary Funds (IMF)
general direction. However, only the Feds index showed
World Economic Outlook, emerging economies share in
the USD dollar reaching new annual highs in June. The
global output has increased from less than 20 per cent
Feds index cannot be used for trading purposes because
in the early 1990s to more than 30 per cent measured at
it is an after-the-fact index that is re-balanced on an annual
market exchange rates. Accounting for differences in the
basis using trade data. However, an index that includes
cost of living, that share is even greater and is expected
a better representation of emerging country currencies
to surpass 50 per cent in 2013. Most US dollar indices
would perform more closely with the Feds index.
T1) Overview: Dollar indices

Dollar Index
Composition
When
Trade-weighted US
Dollar index
Trade-weighted: many currencies based on international trade

with weights aligned according to US trade patterns and
adjusted annually. Weightings at Fed website:
www.federalreserve.gov/releases/H10/Weights
1998 (a new
set of FX
indexes were
introduced)
Creators
Tradable
Volume
Federal Reserve
No, after-thefact index is

unsuitable for
trading purposes.
Not available
1 contract
= $1000 x
Index value.
Approx.
daily futures
volume:
30,000
US Dollar Index (DXY)
Trade-weighted: 6 currencies based on international trade data in

1973. EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2%,
CHF 3.6%
1973
Intercontinental
Exchange (ICE)
Yes, as a futures
contract on
the ICE. Also
available in ETFs,
options and
mutual funds.
DowJonesFXCMDollar
Equal-weighted: 4 currencies; EUR: 25%, GBP: 25%, JPY: 25%,

AUD: 25%
2011
Dow Jones and

FXCM
Yes with online

forex broker
FXCM.
Not available
July 2012
Wall Street
Journal
No but creators
describe it as
barometer for
futures traders
betting on the
direction of the
dollar.
Not available
June 2010
The CME and

Dow Jones
Yes, as a futures
contract on the
CME.
Approx. 1
million in
total FX
futures
WSJ Dollar Index

(BUXX)
Volume-weighted based on trading volume measured by Bank

for International Settlements (BIS); 7 currencies: AUD, CAD, CHF,
EUR, GBP, JPY, SEK
Dow Jones CME Spot

FX$INDEX
Trade and volume weighted: 6 currencies; specifically, 10 Dow

Jones CME FX$INDEX futures reflect a basket of the following
numbers of contracts: 4 EuroFX; 2 Japanese Yen; 2 British Pound
1 Swiss Franc; 1 Canadian Dollar; 1 Australian Dollar.
This Index is calculated as the basket value divided by $10,000
Dow Jones CME FX$INDEX futures satisfied through the physical
delivery of 50K EUR; 2.5M JPY; 12.5K GBP; 12.500 CHF; 10K CAD;
and 10K AUD. Final settlement price based on settlements in the
six component currency futures.
Source: www.fxmania.com
17
iNSiGHTS
What investors
Need to Know about Japan
Most Likely Abes Economic revolt is Already Crushed
When Shinzo Abe was elected as Prime Minister of Japan investors looked forward
to a new era of growth and recovery for the G8 nation, thanks to his heralded
Abecomics plan. Instead of stability investors are faced with fresh uncertainty.
Private investment guru Clem Chambers, CEO of ADVFN.com and author of The
Death of Wealth: The Economic Downfall of the West looks into Abemonics,
what went wrong and argues that inflation and the Bank of Japan point towards the
countrys economic decline.
Clem Chambers
Last month saw the likely death of Abenomics. It is not
Clem Chambers is CEO of ADVFN (www.advfn.com)

and author of several books such as 101 Ways to
Pick Stock Market Winners and A Beginners Guide
to Value Investing.
a foregone conclusion but Prime Minister Shinzo Abe will

need to come out fighting in a very un-Japanese way to
save his program of national regeneration. In a few short
weeks he has gone from hero to zero.
Most likely, Abe will soon be the umpteenth one-year
Japanese leader in a line of political failure. Japanese
18
insights
politics is in hopeless gridlock because no politician
month as it crushed the Abenomic economic rebellion
is able to break the gentle but profound decline. The
by inaction and signalling. The Yen rallied and the
situation is very real. Within two generations the
Nikkei crashed.
Japanese population will collapse from 120 million to 60

million, underpinned and accelerated by the deflationary
The Truth Behind the Figures
policies of the Bank of Japan.
The crash of the Nikkei is probably the death knell for
Japan would like to think of itself as a democracy,
Japan as a nation. Japanese demographics have already
but it isnt. There are plenty of false democracies, such
rolled over into decline. The population is now falling and
as Iran where the dictator Khamenei rules the country. In
humans do not breed well in captivity. The only way to
Japan the dictator is not a religious zealot but a financial
halt this collapse, or even slow it, is through economic
one, the BOJ.
growth.
The Real Power Behind the Japanese Economy
60 million, a figure less than one per cent of the worlds
The Japanese Central Bank controls the long term
population, it must slow its decline now. In ten years it
monetary policy of Japan and thereby the national
will be too late and it may end up with a population below
chequebook. It wields power as it see fit, which is starkly
50 million by the end of the century.
If Japan wants a 90 million population rather than
against the wishes of the Diet, Japans parliament.
The BOJ wants deflation as it sees this as the only
The BOJ policy is long term and based on
sure way to manage what it sees as the inevitable collapse
population collapse whilst, as always, democracy looks
of the Japanese population. While it is independent of the
towards growth. Democracy and central banking are
elected government, which is an enemy of its policy, it
at loggerheads but the BOJ controls the money and
is in control through its grip on the money supply and
therefore trumps the people.
nothing will shake it from its course. As such, Japan is
The strategy of managed decline through deflation
doomed.
is based around the argument that the population is
You might imagine this is unheard of talk in Japan, but
inevitably falling and continuing to age. This means that
in reality many understand this political reality and have
to look after the old you necessarily have to make the
done so for years. Japanese bureaucratic institutions
young carry the burden.
have a tradition of being overwhelmingly powerful.
Inflation transfers resources from the old to the

young, deflation transfers resources from the young to
the old. Japan must have deflation.
Unwanted calls to action are met with passive aggression

and apologies of how difficult the task is.
Today, like the Europeans of pre-WWI, the Japanese
The nations sovereign debt will be repaid by death
population is well ordered and drilled. They are prepared
duties in due course, but Japans problems stem from
to walk without question at the economic machine guns
too large a population. Japan is a resource strapped
because they are told to do so. The young are about to be
nation better suited to 60 million people. The government
economically slaughtered on the altar of the BOJs policy
cannot make people have children, but it can help look
of decline. Abe has days to strike back to turn the fortunes
after the old which is the duty of the nation. Deflation
of Abenomics. The odds are low.
achieves these goals. This is in diametric opposition to

the elected government.
The economic strategy of democracies is always the
You will know if this is happening, not because you

will hear it in the press, because the Nikkei will rally
massively before the political news gets out.
same: inflation. Grow the country and its state through

economic expansion. Take resources from the old and
Conclusion
give to the young through inflation. The young are
A fight back is a long shot because the only way to
economically active and should be boosted at the cost of
vanquish the BOJ is to take away its independence and
the economically passive. Growth and inflation solve all
purge the institution. The elected representatives of
debt problems in the end.
Japan simply do not have the will or strength to do this.
Whilst the BOJs strategy is defensive, Abes
Most likely Abes economic revolt is already crushed.
is attacking. Money talks though and Abe does not
Like Ireland after the great famine, it may take centuries
control it. The BOJ strategy spectacularly won this
to recover.
19
iNSiGHTS
Trading Seasonalities
Part 1: Short Idea for EUR/USD and Long Idea for Gold
In our new section Trading Seasonalities, we are now starting to introduce trades to you that offer a potential trading
opportunity on the long or short side, based on seasonal and technical behaviour patterns. In this first article, we will be
considering two trading ideas for the month of August. Traders can implement these, using the respective futures or options
contracts. They may also trade the setups via the interbank market (for EUR/USD) or by using warrants, certificates or CFDs.
Trading Idea EUR/USD Future
F1) Trading Idea EUR/USD December Contract Short
After the US dollar the euro is the

most traded currency and is the
second
most
important
reserve
currency next to the US dollar. A

seasonal opportunity on the short
side is offered by the EUR/USD on
8th August. With a holding period
until 5th September, traders can use
the last period of seasonal weakness
prior to things moving upwards
again later. While Forex traders can
be active directly in the interbank
market even with a small position
size futures are traded on the
From 8th August, the EUR/USD will again be pointing to declining prices. Building a short position at this time
continues to be supported by the activities of commercial market participants who are already net short (red
bars in the lower sub-graph). The position will be closed on 5th September.
Source: www.trackntrade.com
20
Chicago Mercantile Exchange (CME).

In the chart of the December contract
(Figure 1), an additional shoulderhead-shoulder (SHS) pattern has
iNSiGHTS
formed.
We
have
marked
the
F2) Trading idea December Contract Gold Long
corresponding high points as well

as the valid neckline. As of August,
the seasonality points downwards,
which might coincide with a big sell
signal below the blue neckline. If that
was the case, this would amount to
a target price within a range of 117
points.
EUR/USD Trade Idea: Recent History

The duration of the holding period
can be identified by the area marked
green in Figure 1. The two inserted
lines show the December futures
movement of the last three and five
years
respectively.
The
average
profit of this bearish position was
The December 2013 contract on a troy ounce of gold is to be purchased on 15th August with a holding
period until 29th November (area marked green). The average profi t was 67 points with 45 points being
the level of risk.
Source: www.trackntrade.com
196 ticks ($2460 per contract). The

highest profit ever achievable was
made in 2008. Back then, it was possible for a short position to be opened at 153.21 that was
15th August with a holding period until 29th November,
closed more than ten points lower at 143 four weeks later.
you were able to make money every year in the last
This difference in points translates into $1250. The stop
ten years. Figure 2 shows the holding period of the
should be placed 157 ticks ($1965) above the purchase
December contract to be traded. Since 2001, commercial
price and swiftly adjusted if the euro falls quickly.
market participants had not been as bullish as they were
From early July, a short position will also be supported
most recently. Back then, it was possible to see for the
by the Commitment of Traders (CoT) data (subchart below
last time that the red bar representing this group of
the price in Figure 1). For the first time since February
investors was in positive territory above the zero line for
2013, commercial market participants can be found
the first time.
again on the short side. The red bars below the zero line
After opening the long position, there was an
indicate that this group of investors sees the euro falling
average profit of 67 points, equalling 6700 dollars, while
against the dollar, causing them to position themselves
the average loss was 45 points ($4500). In the years
accordingly. An initial margin of $2475 is required, an
2011 and 2008, the maximum loss amounted to 11,000
amount that, with a longer holding period, decreases to
and 20,560 dollars respectively. This was followed by a
the maintenance margin of $2250 per contract.
countermovement that just about led to a positive result.
Gold Trade Idea: Recent History
Conclusion
A future on a troy ounce of gold certainly is in a class of
Traders paying attention to seasonalities should take a
its own. In the case of this trading candidate, one point of
very close look at these two trading ideas prior to the
movement is tantamount to a gain or loss of 100 dollars.
entry date in question. Ultimately, technical analysis
Here, the initial margin is 8800 dollars, which will be 800
will then provide the crucial signal for the creation of the
dollars less if the position is kept open for a longer period
position in question.
of time. However, you may also switch to CFDs here or

trade the mini contract where one point only equals 38
dollars.
Trading Idea Gold Future

Since the market plunge in April, the troy ounce has lost
more than 400 dollars. If you entered a long position on
Video Update
On 8th and 15th August, you can find in the forum of the
TRADERS website one video analysis each of EUR/USD
and gold (www.tradersonline-mag.com/index.php/forum).
21
insights
13th and 14th September

at the Shenzen Grand Theatre in China
China International
Online Trading Expo 2013
This year the third China International Online Trading Expo (CIOTEXPO) will take place on the 13th and 14th September at the
Shenzhen Grand Theatre in China. CIOTEXPO is the largest forex and options trading expo in China and Asia. The expo features a
wide range of exhibitions, conferences, an award presentation, exhibitor dinner as well as personal networking. The CIOTEXPO is
the get-together for traders, investors, brokers, financial providers and institutions to exchange ideas and information.
The CIOTEXPO is the ideal place to meet professional
experts, CEOs, media representatives both from home
traders, brokers and others who are interested in forex
and abroad will be sharing their ideas and experiences
and options trading and discuss the latest trends in online
with visitors.
trading. CIOTEXPO is held twice a year. Exhibitors can find
CIOTEXPO is organised by the Eastpearl Group that was
new business partners in China and enlarge their customer
established in 2010. The event management company promotes
database quickly. Various possibilities during the expo can
financial services and economic development for traders,
help to promote the company brand and help it to benefit
investors, brokers and other professionals. It is now established
from the effective networking, which reaches investors,
as one of the most dynamic and innovative event solutions
traders, advisers, financial solution providers and trading
provider in the investment tradeshow arena. The Eastpearl
brokers. Of course exhibitors get an insight of the cultural
Group expedites the growth of the Chinese financial sector on
differences in Chinese trading habits.
the international market and has been awarded several Best
The exhibitors and sponsors this year include Alpari,

Ikon Group, IronFX, Instaforex, MIG Bank, Dukascopy
Bank,
Interactive
Brokers,
Axitrader,
Exhibition awards by the local exhibition association.

Apart from the CIOTEXPO, Eastpearl Group hosts
Commexfx,
meetings, conferences and workshops in partnership
Tradency, PFSoft, MarketsPulse, Fxgrow and many
with local governments and financial associations and
more. Along with others TRADERS magazine is a media
helps overseas enterprises to show their products to
partner of CIOTEXPO. The expo expects to see more than
Chinese investors and vice versa.
40 brokers and 5000 attendees. For 2013 the main issues
Visitors and sponsors can get more information on
are technology innovation, trading education, trading
the official website www.ciotexpo.com or contact the
signals, money management, binary options, social
organiser by e-mail: darcylin@ciotexpo.com or by phone:
trading, the booming online trading market in China
+86-755-36949770. Apart from that everyone can now
and forex regulations. At the expo renowned analysts,
register on the website and get free entrance.
22
insights
23
insights news
MetaStock Has Been Acquired by Innovative Market Analysis

On June 13, 2013 Utah-based Innovative Market Analysis
acquired the MetaStock technical analysis software line
from Thomson Reuters. Innovative Market Analysis will
continue distributing the MetaStock and MetaStock
Pro charting software packages to self-directed traders
worldwide. The day-to-day business and services will
remain the same including support, programming,
and developing the software as well as management of
customer accounts.
One of the most important parts of the sale was
ensuring all MetaStock employees remained with the
company. We have a very veteran staff, averaging ten
years of employment with MetaStock, said Scott Brown,
owner of Innovative Market Analysis. What excites me
is the addition of programmers dedicated specifically
to MetaStock. We employ more MetaStock-specific
programmers now than the company has had in the last
15 years.
MetaStock customers are already benefiting from the
addition of the programmers. MetaStock has started to
release bi-monthly service packs, which fix known bugs in
MetaStock. The programming team is close to completing
Scoot Brown
their first major project for MetaStock returning the ability

to store data on the customers computer. This release will
DataLink and XENITH data will continue to power MetaStock
be available in mid-August for all MetaStock customers.
and MetaStock Pro. On the institutional side, Thomson
Innovative Market Analysis acquisition also enables the
Reuters clients will still use MetaStock Pro functionality in
software to be more flexible to customer needs. When
Thomson Reuters flagship desktop Thomson Reuters Eikon.
we were part of Thomson Reuters, we had to focus on
Scott
corporate partners needs first, and then retail customers,
Innovative Market Analysis in order to obtain the MetaStock
said Mr. Brown. This acquisition allows us to explore
software line and move it into a private business setting.
what our customers want and add it to MetaStock. There
I created Innovative Market Analysis because MetaStock
are numerous possibilities under consideration to enhance
has great potential and I feel breaking away from Thomson
the product right now.
Reuters allows us to turn potential into reality, said Mr.
Innovative Market Analysis will continue to have a working
Brown, owner of Innovative Market Analysis.
Brown,
former
MetaStock
relationship with Thomson Reuters. Thomson Reuters
President,
created
Source: www.metastock.com
RTS Realtime Systems Expands in Greater China

RTS Realtime Systems Group announced a number of
the Hong Kong Exchange (HKEx) co-location facility. The
actions the firm has taken to further build on its growth
firm will develop low latency gateways to capitalise on
in Hong Kong and Mainland China. The steps include
HKExs new Orion initiatives and connect to its equities
the launch of a Chinese-language website and recent
and derivatives platform.The firms Hong Kong operation,
establishment of a Shanghai office and expansion of its
RTS Realtime Systems HK Limited, was exhibiting at LME
staff there. In Hong Kong, RTS has expanded into new
Week Asia 2013 in Hong Kong in June.
office space and initiated plans to move its data centre to
24
Source: www.rtsgroup.net
Insights news
US Markets May Fall

When companies begin reporting
Q2 results, investors will look for
signs that profits can keep the bull
market going once the Federal
Reserve steps aside. The prognosis
is not good. Companies in the S&P
500 are expected to report overall
earnings growth of less than one
per cent. Excluding the financial
services industry, with projected
profit growth of 17 per cent,
overall earnings are expected to
decline by 2.4 per cent. In another
troubling sign, a record number
of companies have already issued
negative guidance for the quarter. Out of the 108 companies that have released forecasts, 87 have projected
earnings below consensus estimates. Thats the highest number since the data provider started keeping records
in 2006.
Source: www.money.cnn.com
Regulators Worry Next Financial Crisis Wont Be Caused by Banks

Non-bank financial firms sounds like a non sequitur.
The idea of letting these kinds of financial grey area
Require them to hold more capital in reserve
firms, also known as NBFFs, continue to endanger the
Place such firms under Federal Reserve oversight;

against potential losses;
global economic system is fast becoming a non-starter.
Require them to undergo financial stress tests
The US governments Financial Stability Oversight
such as those that already apply to Americas
Council, and members Treasury Secretary Jacob Lew
biggest banks;
and Federal Reserve Chairman Ben Bernanke, proposed
Obligate each regulated NBFF to prepare a living
tightening oversight of NBFFs. If passed, the regulations
will explaining how it will safely wind itself down
would name specific NBFFs as systemically important
in the event it becomes insolvent, or otherwise too
to the financial system, and subject them to heightened
weak to go on living.
regulation. Specifically, the move would:
Source: www.dailyfinance.com
Gold Is Still an Attractive Investment Tool

Although gold prices dropped 23 per cent in the second
many players in the currency markets but also many retail
quarter, the appetite for gold still remains. Several factors
players who are interested in having some sort of security
are structurally creating a natural floor in gold prices and
in the currency space. The changing supply and demand
will continue to provide support. There are two factors that
dynamics for gold is the second factor. Emerging markets
will provide support to gold prices. The first factor is that,
predominantly in Asia remain in the lead in terms of gold
gold is being viewed as a currency rather than a commodity.
demand. Not only is gold culturally important in countries
In fact, central banks account for a significant portion of
like India, the uses of the precious metal is evolving.
gold demand. Gold becomes a natural destination for
Source: www.kitco.com
25
insights news
Expanding Chinese Currency

Following the most recent shift away from a USDcentric world (with the China-Australia direct currency
convertibility), it seems the possibility of Chinas Yuan
as the next global reserve currency is getting closer. The
British, Germans, and now the Swiss (who just signed a
free-trade-agreement with China) are all actively vying to
become Europes Yuan trading hub as it seems the long
line of developments to internationalise the currency over
the past two years.The Chinese currency is well on its way
to becoming one of the future global reserve currencies.
Although, the USD is still the most commonly-used
currency for settling trade with China; from virtually zero
in 2010, the Yuan is used to settle over twelve per cent of
trading transactions now and is likely to increase further.
Source: www.zerohedge.com
Tesla Motors Joins nasdaq-100

Electric car maker Tesla Motors (TSLA) entered
the NASDAQ-100 Index on the 15th of June
having experienced surprisingly positive, through
the roof figures during the last several months.
Simultaneously, Oracle`s (ORCL) shares have dropped
out of the index.Tesla most recently had a market
capitalisation of around 13 Billion dollars.
Source: www.globenewswire.com
Dollar Gains Strength

Investors are becoming increasingly bullish about
the U.S. dollar in anticipation of a stronger economy
later this year. The newfound enthusiasm for the buck
follows a choppy period as investors prepare for the
Federal Reserve to eventually unwind its stimulus
program. Depending on how the economy performs,
the central bank could begin tapering its bond buying
program by the end of this year. The remarks sent the
dollar higher against its main trading partners as stocks
fell and bond yields rose. Although the Fed trimmed
its outlook for economic growth this year, traders seemed to take Bernankes comments as confirmation that the
recovery is gaining momentum. At the same time, market volatility is expected to remain high for now, which
should help boost the dollar.
Source: www.money.cnn.com
26
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simply the most powerful platform available to the private trader.
MetaStock XENITH is a comprehensive and flexible system with
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TOOLS
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Best Choice Software, which offers seasonality-based

swing trading software, announced they had combined
forces
with
Estockoptiontrading
to
bring
clients
daytrading software and training. The system trades one
News from the World of Technology
selected stock for about an hour a day using proprietary

software. Members are trained to use the system to trade
consistently. Additional information can be found at
www.bestchoicedaytrader.com
Barchart.com, Inc. announced that it is now connected

to
NYSE
Technologies
SFTI
NYSE
Ward Systems Group released ChaosHunter 4.0, a
Technologies is the commercial technology division
stand-alone software tool designed to produce readable
of NYSE Euronext and provides broadly accessible,
formulas to model your numeric data for applications like
comprehensive
connectivity
Network.
transaction
buy/sell signals, future value of time series, scientific,
capabilities, in addition to data and infrastructure
and
business financial or sales data and many more. To use
services for mission critical trading services. SFTI
ChaosHunter you have to enter text files or historical
stands for Secure Financial Transaction Infrastructure
data from spreadsheets or data feeds. After that you can
and also offers ultra-low latency connection speeds
choose between arithmetic and mathematical functions
and huge bandwidth capabilities. With its connectivity
that you want ChaosHunter to use. It then produces
to SFTI, Barchart has access to virtually all North
numeric formulas that you can read, understand, utilise
American equities and derivatives markets, as well
and even sell outside of ChaosHunter. The Formula
as many international markets. The additional market
Editor of ChaosHunter allows you to make changes and
centre coverage adds to the depth of Barcharts
apply the model to your data file. Additionally, you have
data feed division. Further, the strength of the SFTI
the possibility to save several formulas as long as you
backbone enhances the level of resiliency Barchart can
give them different names. They can be the formula you
provide to its clients. Additional details can be found at
created or a formula optimised by ChaosHunter. It is
www.barchart.com
possible to transfer the formulas to other popular trading

platforms, like NeuroShell, Interactive Brokers Trader
Workstation, TradeStation, Ninja Trader, Wealth-Lab Pro,
Best Choice Software
eSignal, Microsoft Excel. Additional information can be

found at www.chaoshunter.com
Fidelity has released a Windows Phone 8 brokerage
app, offered through the online Windows Phone Store.
The mobile services and apps of Fidelity offer you access
to your accounts whenever and wherever you want. That
includes watching your portfolio, trading in your brokerage
account, making transactions, getting news, videos, realtime quotes and charts. You can set up a watch list and
get access to stocks, options, ETFs and mutual funds. You
can pin individual securities directly to your home screen
using Live Tiles. Live Tiles update real-time and flip to
show relevant news stories, allowing you to make trades
quickly and easily. More information at www.fidelity.com
28
TOOLS
Monitoring numerous open positions can be challenging
and German power markets. Additional details can be
for even the most experienced of Forex traders. To
found at www.thomsonreuters.com
address this difficulty, MahiFX has created a new range

of platform trade viewing features and options to enable
TipRanks announced an enhancement to its Financial
customers to trade more simply and efficiently. The
Accountability Engine, a free browser extension that
newly designed Position Book/Aggregation button gives
provides individual investors with information about
traders the option to merge all open positions into easy to
analysts who provide stock recommendations. When a
monitor book. By selecting the merge to master function,
TipRanks user visits a financial website such as Yahoo!
traders can feed all following trades of the same pair into
Finance or Google Finance and searches for a stock
the master trade, giving a snapshot view of their overall
symbol, a TipRanks side tab provides instant access
position. This is of particular benefit to traders who
to the three top-performing financial analysts stock
employ a scalping trading strategy. The platform upgrade
recommendations and the accuracy rates of analysts. In
also includes a Book Change to cater to the preferences
addition, users can access news articles that reference
of traders who like to be able to set up multiple books
the analyst recommendations or that quote the analysts
and those traders who prefer a less cluttered interface.
on why they made those recommendations. For more
To lessen any potential confusion for less experienced
information, please visit www.tipranks.com
traders, books are now only explicitly created and

removed by the trader, rather than automatically being
Trading Technologies International (TT) announced
generated. Traders who do not wish to set up a trading
it will offer X_TRADER with bundled access to its 35
book can now choose to use the trade view completely
supported markets for a flat rate of $500 per month and
separate from the book view. For further information,
X_TRADER Pro for a reduced price of $1200 per month.
please visit www.mahifx.com
In addition, X_TRADER will include synthetic order

functionality through its Synthetic Strategy Engine
Thomson Reuters has launched a new analytics tool
(Synthetic SE), which was previously available only
on Thomson Reuters Eikon to help commodities traders
with X_TRADER Pro. For more information, please go to
and analysts predict prices in major European power
www.tradingtechnologies.com
markets. The new tool, Power Curve, uses innovative

visualisation techniques to enable traders and analysts
focused on European power markets to obtain realtime, fundamental fair value assessments of the Nordic
Thomson reuters
and German power markets. This reduces time spent

on research and analysis, enabling financial markets
professionals to focus on higher-value tasks in the building
and monitoring of trading strategies. Germany and the
Nordics are two of the most liquid power markets in the
world. Power Curve on Thomson Reuters Eikon provides
commodities traders with an intuitive visual display of
Thomson Reuters Power Curve Model, combining power
supply data now available under REMIT (Regulation on
Energy Market Integrity and Transparency) with realtime fuel prices, weather, available capacity information
and Thomson Reuters proprietary supply and demand
models, to provide a fair value assessment of the Nordic
29
tools
NEW PRODUCTS
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http://w ww.kitco.com
www.kitco.com
Get Updated with Detailed Information & Data for Commodities
There are so many websites available which provide various kinds of information and data
for commodity markets especially bullions like gold, silver and platinum etc. In addition to
websites, some applications are also available for collecting detailed information such as
professional leading data, most at varying costs. These kinds of data sources can be costly
and/or difficult to find on the internet and /or are not reliable for full time traders. Here, we
look at www.kitco.com in order to analyse its usefulness to traders.
Structure & Mode of Operation
on. These are some of the most reliable sources which
Kitco.com is widely used by professional traders in
provide market affecting news. Figure 1 shows kitcos
collecting information and leading data. This site provides
homepage, which displays the latest market news
the latest news and updates from various sources like
reports, commentaries contributed by various traders,
Reuters, Bloomberg, Mining Weekly, Kitco News and so
and information from various press releases. Kitco not
30
tools
only provides information and data about the market,
F1) Front Page
but it also provides fundamental and technical analysis

from various well known international institutions such
as Standard Bank and Scotia Mocatta etc.
On the bottom of the homepage, you will see updated
data on currency pairs in Figure 1, which is sponsored
by one of the most reliable websites in trading: www.
forex.com. If we move to the right side of the homepage,
some small boxes can be seen. These include gold daily,
monthly and yearly updated charts so that traders can get
some fair idea about the performance of gold amongst
the other underlyings. This website is made for providing
data and information about bullions especially gold.
Precious Information
In the world of trading and investing, the market always
discounts news and information very quickly. Here,
timing in getting this information is very important.
Information, which is received after a major underlying
movement is worthless. So, professional traders need
this information very quickly so that they can take
positions as per their analysis. Furthermore, if we see
the first tab page in Figure 2, which deals with quotes
for all metals. This page contains the updated data for
precious metals in terms of New York spot price and
the world spot price. Difficult to obtain data such as
XAU and gold rations as well as three major currency
fix prices for gold, silver, platinum and palladium in
Figure 1 shows the homepage of www.kitco.com. Here, you will find data in
small boxes on the left side of the webpage in sequence. In the middle of the
page, you will find latest news and market updates, important commentaries
and current exchange rates from various reliable sources.
USD, GBP and EUR is also displayed

here. On the left hand side in this
page, some boxes can be seen.
F2) All Metal Quotes
These boxes show the precious

metals updated charts, some major
leading
market
indicators
and
major currency pairs with updated

data. This data is provided by www.
forex.com.
Technical charts for analysis
are also provided in the next tab
page. By clicking on the middle
of
the
page
you
will
see
an
interactive gold technical chart.

After clicking, a new web tab page
will be opened which will start a
java based platform and you will
see the gold interactive chart with
user friendly time horizons. On that
page, important current market
related
press
news,
releases
commentaries,
and
important
Figure 2 shows the all metal quotes tab page. Here, you will see all major bullions updated quotes and three
major currency fix prices.
31
tools
The site provides updates, news, reports, data as well

as analysis of bullion for professional bullion traders.
analysis is seen on the right hand side. You can see
Traders can check and discuss with others in the gold
technical charts not only for gold, but those for silver,
forum tab page, where trader can read some general
platinum and palladium as well. Historical charts are
thoughts and opinions of other traders, as well as ask
also provided by clicking on the historical charts box.
questions to the forum.
Detailed lease rates or precious metals are shown after

clicking on the lease rate box. Here, traders will get
Reliable Sources of News and Reports
all data (forward rates, lease rates from various time
If we move further to the research reports from various
angles) regarding gold, silver, platinum and palladium.
financial institutions, Figure 3 will give you the perfect

idea about how this looks. You can see and read
numerous in-depth research reports from various well
known financial research firms such as Standard Bank
F3) News & Reports
and Scotia Mocatta etc. These reports are published on

a regular basis as international news and events come
out. Any trader will want to see the latest research before
execution of any trade or taking a position in bullion.
Sometimes traders can not analyse some typical
information and data or analyse falsely which leads to
huge losses and a short term trading position turns in
to a long term investment position. Hence, sometimes
traders need to seek advice or opinions and data from
a professional commodity analyst for perfecting trades
and for confirming trends in any bullion is valuable.
Here, Kitco provides the latest research reports, traders
commentaries in the News and Reports tab. On the right
side of reports, a small box shows connection with the
underlying.
Conclusion
Kitco is the professional platform for bullion traders
especially gold. The only drawback to this site is the
lack of auto refresh. Traders need to refresh whenever
they want fresh information and data. This site provides
updates, news, reports, data as well as analysis of bullion
for professional bullion traders. They no longer need
rely on costly and hard to find subscriptions for software
and financial websites. Android, ipad, Blackberry and
Figure 3 shows the news & reports page of Kitco, where you can see various
research reports from various financial institutions.
32
Windows mobile users can also enjoy these services by

installing a Kitco software called Kcast on their mobile
devices.
TOOLS
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MetaTrader Trading Signals

Many possibilities with Social Trading
More than seven million people use the MetaTrader 4 and MetaTrader 5 client terminals.
Now MetaQuotes has gone one step further by providing a signal-service to every user.
When implementing this feature to the terminals, the most important and most daunting
challenge was the security of all traders that use the ne MetaTrader Trading Signals
service. Any shortcoming could result in risks and losses for subscribers and providers.
Testmode
they will show profit in the future, but until then they
During the development of the service the security
cannot be subscribed to.
of the investor funds accounts was one of the most

critical issues within this complex task. That is why a
No Overtrading
signal has to pass an obligatory one-month test period,
An important feature of MetaTrader Trading Signals
before it is available for paid subscription. During the
is
test period subscription is blocked and the provider
all participants. Signal providers receive a fixed
performs trading operations like making profits and
subscription fee regardless of the number of deals and
bearing losses. Only after completing the one-month
profits earned, so it does not make sense for them to
period with a profit the signal can be subscribed to.
perform frequent small trades in order to receive more
Loss-making signals remain in the test mode. Perhaps
commission fees or take too much risk trying to earn
34
the
absence
of
conflict
of
interest
between
tools
more. The incentive for the signals
F1) Subscribe-Window in the MetaTrader Platform
provider is to show steady profits,

as this will attract more subscribers
and
boost
income.
Users
of
MetaTrader Trading Signals can

subscribe
their
trading
account
directly to a signal provider in the

MetaTrader-platform.
During
the
subscription process the investors

can clearly designate a portion of
their deposit that is to be dedicated
to signal following. Furthermore
copying deals can be stopped as
soon as the deposit has dropped
below a certain level. For example,
it is possible to allocate only five
per cent of the deposit for signal
In the above window a user can define risk-parameters to the subscribed signal and enable real-time trading.
Sourcee: www.metatrader.com
following to check how profitable

and reliable it is.
Another instrument to protect
the investor is the mechanism that one trading account
Conclusion
can only copy signals of one provider. This limitation
MetaQuotes provides traders with the most secure solution
pursues the same goal security of investors funds.
for social trading. End-users have appreciated it. Thousands
If a trading account is managed by several signals,
of traders have become signals providers and are already
they seriously overload the deposit and that may lead
offering their trading signals on MetaTrader 4 and MetaTrader
to the rapid loss of funds. Besides, several trading
5 terminals. Thousands of other traders have become their
signals on one single account can conflict with each
subscribers thus gaining the opportunity to make money
other. For example, one signal may require entering
on forex with little extra effort.
a short position with three lots,

while another one may demand
entering a long position with five
F2) Listing of All Available Signal Providers
lots. Finally, traders can cancel the

automatic copying of deals at any
time disabling the copying system.
Signal
providers
are
also
well protected. First, as already

mentioned, the access to signal
providers personal data is strictly
limited.
Second,
their
trading
accounts are also secure, as they

only use an investor password in the
service. This allows them to connect
to their account in read-only mode
without
the
ability
to
perform
trading operations. Thus, signals

providers
may
broadcast
their
signals and make money without

taking risks.
A lot of systems passed the first month and could be subscribed to after taking an in-depth look.
Sourcee: www.metatrader.com
35
TOOLS
NEW PRODUCTS
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vectorBull and ForexBull

Automatic Trading Systems without Additional Cost
The possibility of stock market analysis with the help of computer programs often adds considerable cost to a monthly
subscription. Software company Spring Techno in Bremen, Germany offers an attractive alternative with their series
VectorBull and ForexBull. The two different versions are suitable for different users. All versions together offer trading system
modules that generate nearly 25,000 stock-, index-, commodity- and forex-signals at no additional monthly cost.
Functionality
longer the period of prognosis, the greater the possibility
VectorBull can be used with any kind of historical
of false signals.
price data while ForexBull is specialised on forex and
Figure 1 shows the working screen with the analysis
commodities. Both programs analyse the historical
of the Apple share in indicator mode. On the left is the
price development of the chosen instrument and predict
menu bar with all options to choose from. On the 10th of
the highest probable price development in the future
June 2013 Apples share should fall with a probability of 68
based on similarities in the price development of the
per cent. You can find the details of the prognosis and the
past. Different software providers already offer pattern
formation that determined the result below the chart. On
analysis, but whereas those often offer mainly candlestick
this day the stock had a potential to 444.25 dollars followed
charts, Spring Techno chose a different way.
by a low at 433.68 dollars before closing at 437.11 dollars.
A current chart pattern for the price development
Of course we checked this. The daily high was at 449.08
of a stock, for example, the relation of open, high, low
dollars and the low at 436.80 dollars. The close of the stock
and close of the last few days, is generalised and then
at 438.89 dollars was near the prognosis.
searched for in the stocks historical database. Recurring

chart patterns show the behaviour of market participants
Installation and Possibility of Trial
in certain market environments. This assumption is based
VectorBull can be purchased for 499 euros or it can be
on behavioural psychology and has been confirmed
rented. Before buying, the user has the possibility to test
sufficiently in financial studies. Next the software
each version for a period of 14 days. You have to download
calculates the probability of occurrence (expressed as a
a seven MB-file from the website in order to install the
percentage) of the price tendency based on the number
program. The installation is done once per version and if
of similar patterns found. VectorBull makes a precise
you buy it you receive an unlock code a users licence
prognosis and determines the expected highs and lows
including updates and data feed. The software needs an
within a certain time period. The user can get a prognosis
internet connection, because the historical data will be
for a day or for two to three weeks as well. However, the
downloaded from the company server only when needed.
36
tools
Further cost only occurs with the
F1) Working Screen VectorBull
forex-version, if you want to follow

analysis and recommendations of
professional traders. If you want
to use the software on the road it
is possible to install it on several
devices, but you can only use one at
a time.
The Entry
The VectorBull version offers over 80
systems on German and American
stocks, forex, indices and futures
that are all based on a trading period
of two to five days. The systems
are no money printing machines
but suggestions for the individual
for further development and can be
used as signal providers as well.
The working screen of VectorBull in indicator mode. If the software finds similarities in the past, it displays
the estimation as well as the particular formation below the price chart. Apple should fall the following day
and it did.
Source: www.vectorbull.com
Both, VectorBull and ForexBull,

can be started in indicator mode
or trading system mode. In the
indicator mode a chart is opened with one or more
can compose every tradable universe of instruments and
prognosis that can be examined immediately. The time
the system will calculate daily signals.
frame of the prognosis is set in days and the chart with
Lets focus on the Apple share. It has increased
the prognosis bullish, bearish or neutral is displayed
over years. A trading system should be profitable after
after a short time of calculation. In the trading system
a trend reversal to the downside. The holding period
mode the user is challenged. He can test more than
will be five days. Therefore we used the trading system
40,000 entry- and exit parameters with a system finder
mode of the program. The price development of Apple
for every single stock.
was analysed and the program searched for formations.
Each trading system can be saved as a scenario and can
Then the system finder searches ideal combinations of
be used in combination with hundreds of such scenarios
a strategy in so-called evidence mode. That means
in different markets to generate orders accordingly. The
that signals are tested for two thirds of their history and
so-called AutoTradeAdvisor delivers the data that
then you receive a list of all trading system data as a
should be set in the trading platform

limit entry, position size, stop-loss
and profit target.
F2) System in Real Time
Apple in Trading System Mode

Whereas the indicator mode only
offers a prognosis without precise
entry- and exit rules, the trading
system mode is more complex. The
program calculates scenarios based
on the predefined usual rules like
entry/exit, position size and stop-loss
for every instrument with system
finders that are only valid for this
title. After you have found a system
with positive expectancy value you
The trading signals work in real time as well as in paper trading. The performance curve is based on signals
that were traded with real money on a client account.
37
tools
result. The software displayed 1121 profitable systems
to the developer you could also trade it with less money
out of 9521 calculations. We terminated early to avoid
using CFDs. That shows that it is possible to earn money
over-optimisation. We search for a system that shows an
with the scenarios and that they are not theoretical results.
increasing equity curve even with the missing third of data
Every user has the ability to create a scenario for each
and sort it by the profit factor. The system recalculates and
of the 25,000 shares and to combine those to generate
updates the equity curve by the last third of the history
trading orders. The developers also deliver, for example,
that was not included in the first calculation. Although
catalogues for sector-indices to analyse individual shares
Apple showed considerable price loss in the recent
within these sectors. Therefore a trading system is
past, the price losses of the chosen system are limited.
possible that generates signals, for example, based on
According to the developer, the software learns with new
the 30 DAX-shares or the shares in the NASDAQ100.
data and therefore the pattern analysis is adapted. The
Furthermore, the user can create buying- and selling-
trading system parameters of the system chosen are then
scenarios for all important commodity futures to build
saved as a scenario and are only valid for the Apple stock.
call-write positions after the signal. Another feature is
This process has to be done once for each stock that
the so-called crystal-ball. It is used to create a list that
you want to add to your preferred trading universe. The
shows if the particular day is bullish, bearish or neutral
AutoTradeAdvisor checks the single scenarios and adds it
for the chosen title based on the vector analysis. The
as an order for the user.
system predicts the next five days and in addition there

is a total prognosis including the evaluation of the trend
Trading Systems in Real Practice
strength.
Of course we asked if such scenarios could be traded

real time as well. Figure 2 is an example that clients of a
VectorBull-Realtime Offers Intraday-Prognosis
German broker have used on their own trading accounts
A completely different thing is the Vector-Bull-Realtime-
for over a year now. Spring Techno determined scenarios
version. It might be the same name, but it is designed
of 14 US-stocks with a holding period of five days. The
for a completely different user group. In contrast to the
result is impressive: The account size was 14,000 euros
stock-edition the program does not generate entry- and
and the risk per trade was 0.5 per cent at maximum. It
exit signals, but a prognosis line for the next 24 time
began at the beginning of 2012. The total performance
units is created based on a database of up to 15 years
was 15 per cent or a total profit of 2100 euros. According
of tick data. If you opt for the software to calculate in

the 4-hour chart, you will know what
may happen in the next 96 hours.
The smaller the time frame, the more
F3) Real-time Version for Daytraders
detailed the prognosis. Short term

traders could compare the 5-minute
chart with their own strategy and
trade positions accordingly. Here
as well are no additional costs after
purchasing, because Spring Techno
delivers the necessary realtimeprice-data for free. In total there are
60 DAX stocks, Dow Jones Index,
40 currency pairs and 25 indices,
futures and commodities.
We tested the software nonstop and the price development
was predicted very well. But there
are difficulties if there is important
A blue prognosis line offers hints how the analysed instrument may develop if the price will develop similar
to the past. The chart shows the prognosis and the actual price development of five markets. The line shows
96 time units.
38
economic news. Figure 3 shows a

blue prognosis-line in the 30-minute
chart
for
gold,
EUR/USD,
DAX-
future, crude oil and bund-future.
tools
The prognosis line was created on 24th June 2013. The
the daily range of fluctuation. Therefore he can place
current price developments are displayed above the
the stop accordingly and avoid to be stopped out by a
prognosis line as a bar chart. Processed prognosis stay
random movement of the market.
in the chart and a new prognosis is generated after the
An overview of signals offers recommendations
current bar is closed. The blue line often differs from the
for the trading day. At 7 oclock in the morning you can
price, but the trend is correct therefore an update was
download the so-called Early-Bird-overview. This table
programmed in the last days to improve the relation of
concludes entry, direction and potential and shall offer
the prognosis line to the actual price. And the analysis of
an advantage to the early-risers. This table, which should
the prognosis and the current price is better. The price of
provide a surplus value especially to the early birds,
this intraday-software is 1295 euros, but it can be rented
combines entry, direction, and potential. Another novelty
as well.
of ForexBull: Users can exchange trading systems with

each other via a special menu.
ForexBull with Additions

Let us now take a look at ForexBull, a program that stands
Conclusion
out because of its considerable additions and that offers
The Vector-series of Spring Techno offers automatic
analysis instruments only for currency pairs, commodities
pattern recognition without additional cost in contrast to
and some interest- and stock indices. Trading systems
other charting programs. You can count on the accuracy
can be developed just like in the stock-version.
of the signals in the future, because the software is
You will see what is offered in addition, if you use the
continuously fed by the latest prices in all versions. In
menu tools. Following is a list of additions to ForexBull:
the meantime brokers already offer the stock-version to

their clients to generate automatic signals for individual
Correlation matrix that opposes all titles
instruments. We especially liked the real-time version,
Overview of volatility with the daily movements of
because it is another tool for the daytrader to find better
the past twelve weeks
entries. If you are interested you should test the different
Momentum-guard, that shows trends for six different
software versions to see which one fits your trading
time frames
behaviour.
Table of the changes since the

beginning of the year, of the past
six months and of the current
F4) ForexBull Overview of Volatility
week

Economic calendar of the current

day
Trading
signals
that
use
movements of the trading night

to generate signals

Seasonality indicator with

adjustable time frame
ADX-list to show the strength of

a trend
Furthermore
indicator,
the
ATR-
pivot-lines
and
regression channel, that is drawn

automatically, were added to the
chart
module.
Figure
shows
the overview of volatility of the

German DAX. Option traders can
see from this table when it is wise
to change to the seller- or buyer-
ForexBull offers various tools that are not available in the stock-edition. The overview of volatility helps
traders to place stops correctly.
side whereas the daytrader learns
39
TOOLS
NEW PRODUCTS
WEBREVIEW
SOFTWAREREVIEW
BOOKREVIEW
APPVIEW

A Simple Approach to Trading Foreign Exchange
Using Fundamental and Technical Analysis
by Kathleen Brooks
About the Author
This concise and well written beginner-level guide
Kathleen Brooks is UK and EMEA research director at Forex.
to foreign exchange is something different, with the
com based in London. She uses both fundamental and

technical methods in her analysis and often fuses the two to
get a complete picture of the market. Her philosophy of market
analysis is to break things down to their most simple parts and
build from there. She is a regular contributor to Yahoo Finance,
Reuters Great Debate and she is often quoted in international
publications including the Wall Street Journal and the Financial
Times. She can be seen regularly on business TV including
CNBC, CNBC Arabia, Sky News Australia and the BBC. She
started her career in finance at BP where she worked first as
a business analyst in its trading division and then as a trading
analyst in its foreign exchange dealing room. Prior to joining
Forex.com she was a financial features writer for City A.M.
Kathleen holds an undergraduate degree in English Literature
and Classical Civilization from Trinity College Dublin, and a
Masters of Science from The Graduate School of Journalism
at Columbia University in New York City.
40
authors approach established at the outset to be the

fusion of fundamental and technical analysis. So often
diametrically opposed to each other, these techniques
are frequently used together by many successful traders,
but this does not seem to be written about very often.
Authors tend to advocate the use of one or the other
method. However, Kathleen Brooks is correct in arguing
they are complementary techniques.
Content
The first two parts of the book discuss fundamental and
then technical analysis. For each, the main news, data,
indicators and techniques that the author uses in her
trading are provided including labour market surveys,
inflation data, GDP, Moving Averages and Ichimoku clouds.
In Part C, real trading examples are provided to show
how fundamental and technical analysis are employed
together. Part D then shows how the author develops and
TOOLS
engages trading strategy using effective risk management

techniques.
As you would expect from a book with the authors
name in the title, this is a look at one FX traders personal
approach to the market. It is an illustration of one persons
way of doing things it does not claim to be definitive,
or state that you must do things this way, which is to its
credit, as there is no single correct method for trading.
However, it is by learning how other successful traders are
operating and incorporating some aspects of what they
do into our trading that we can improve our approach.
Conclusion
The two greatest assets of this book are its concise
length it is accessible and clear and that it shows
how someone from a background outside of economics
can still learn how to trade foreign exchange. It is highly
recommended as a foundation for beginning forex
traders. It also provides food for thought for those who
have been trading for a while.
Bibliography
Title:
Subtitle:
A Simple Approach to Trading Foreign Exchange
Using Fundamental and Technical Analysis

Authors:
Kathleen Brooks
Pages:
140, Paperback
Price:
16.99
ISBN:
9780857192059
Publisher: Harriman House
41
TOOLS
NEW PRODUCTS
WEBREVIEW
SOFTWAREREVIEW
BOOKREVIEW
APPVIEW
Trading Diary-App
The Trading Journal for your iPad

Every trader who treats his activities at the stock markets as a business knows that keeping a trading
journal can have positive effects. Although it is not the most exciting task it is worth it, because the
improvement of ones performance is impossible without failure analysis. For those of us not so savvy
with Excel and its ilk, the trading diary app from Plum Square is a very convenient solution for keeping a
trading journal.
Step 1: The Planning
for risk- and money management. Thus you can enter the
After downloading and starting the application, a clearly
account size as well as the risk per trade and the maximum
structured screen appears in the upper bar depicting the
drawdown per month. After defining the basic conditions,
three steps of keeping a trading journal. Before you start
the first step requires the following data for a trade that
it is recommended to determine all parameters for the
has to be typed in the area plan:
42
tools
A trading journal is only helpful if the

entered trades are analysed regularly.
Ticker symbol
or only losing trades, this can be done with a single
Order type
click as well.
Entry price
Initial stop-loss
Step 3: The Analysis
Profit target
A trading journal is only helpful if the trades entered

are analysed regularly. This is where the area review
The app automatically calculates the particular
comes into play. Here you can analyse and evaluate
position size, the potential profit as well as the risk-
closed trades. It makes sense to answer questions such
reward ratio (RRR). A useful feature is the implementation
as:
of graphics from the iPads picture gallery. The reason

for the entry is also very important. Thus the trader has
Did you execute the trade according to plan?
the possibility to put his trading plan into words. Even
Did you make mistakes? If yes, which mistakes?
weeks or months later you can understand the motivation
How do you feel after the exit?
behind the precise trade.
What can you do to improve your trading in the future?
Step 2: Entry and Exit
Another interesting feature is the reminder function
After executing the planned transaction you enter all
which is adjustable. Eight weeks after the analysis the
parameters of the entry like date, time, order type,
trader is reminded to perform a follow-up-analysis. The
quantity and execution price in the area trade. Here
idea: After a certain time period, the trader can evaluate his
as well, the trader can insert charts as picture files and
own trading behaviour more objectively than immediately
add comments. Especially if the

stop-loss is trailed this is a good
way to add pictures or words to a
F1) Entry and the Exit
specific decision. After closing the

trade all necessary data is entered
again. The user also can enter the
daily high and low and then the
app calculates some kind of rating
for the exits and entries that is
displayed graphically elsewhere.
The trading diary then calculates
the result of the transaction and
offers the trader the ability to insert
charts or comments. Differences
between the planned and the actual
entry and exit are calculated and
displayed as well.
The selection-function in the
left area of the screen (see Figure
1), where you can sort all trades,
is very practical. For example,
you can look at all open or closed
trades with one click. If the trader
wants to see only profitable trades
In the area trade all parameters concerning the entry and the exit of a transaction are entered. The user has
the possibility to insert comments and charts.
Source: www.plumsquare.com
43
tools
after the exit furthermore you can
F2) Equity Curve
see how the price developed after the

exit, and based on this information
the trader can gain more valuable
information for the improvement of
his trading behaviour.
Equity Curve in the Twinkling of an Eye

This trading diary app is easy to use
the input of the data as well as the
output of the data. This is especially
apparent during the quantitative
analysis of your own trades. If you
are not a pro excel user and you do
not want to calculate manually, but
you want to receive hard facts about
your trading nonetheless, you will
love the app for its statistics- and
equity-curve functions.
In the area results the trader finds the equity curve as well as other statistics for example hit rate, RRR
or holding period.
Figure 2 shows the graphic

display of the equity curve. You
can choose different time periods
and therefore you can measure the
current as well as the medium and
long term trading success based on
F3) Overview of Key Figures
portfolio development. The best and

worst trade is displayed as well as
winners and the losers. If you click
on a data point the precise relevant
data of the trade is displayed and
you can activate the particular input
screen with another click therefore
you can look at, for example, outlier
trades very effectively and quickly.
That is as good as it can be.
Facts, Facts, Facts

If you want to take a look at the key
figures of your trading performance
instead of your equity curve, you
can find further display options in
the statistics area which offers the
following information:
The function statistics offers a detailed view of the performance parameters: All important key figures as
well as ratings of the entry and the exit are displayed here.
44
Winners versus losers (%)
Overall results
tools
Average winning trade
F4) Diary Function
(absolute)

Average losing trade (absolute)
Average result per trade

(absolute)
Average risk-reward ratio
Average holding period

It is also possible to divide key
figures in long and short trades. This

can deliver valuable information for
improving your trading behaviour.
The
app
offers
the
possibility
to export the data as csv-file for

readers who are interested in further
processing the data with a spread
sheet program. Another highlight
of this app is the diary-function as
shown in Figure 4. The user can
The flexible data base function enables an easy and quick sorting of all parameters of a trade.
sort by criteria such as trading
instrument, results, entry- and exit

rating or date.
money-management function helps to stick to the risk
Conclusion
limit and offers valuable services calculating position
The trading diary app from Plum Square is a powerful and
size. At a price of 159.99 EUR, the app seems expensive at
easy-to-use tool for everybody who wants to document
first glance, but if you look at the extent of functions and
and analyse their trades directly on the iPad. The risk- and
features the price is justified. Thumbs up!
45
strategies
Connors Research Trading Strategy Series Part 3
The Long Pullbacks Strategy

Pullback trading is one of the most popular forms of trading amongst traders. The good news is that when it is
done correctly it can be very lucrative. The not so good news is that over the past two decades there has been
a proliferation of pullback strategies which have been published that have little to no edge at all. In this article,
we will share with you a strategy which was first published in 2005 and continues to show positive quantified
test results heading into 2013. As a whole, you have here one of the most robust quantified equity pullback
strategies published and this is a strategy which will likely become a go-to strategy for you. As in Part 1 and 2
of this series (TRADERS June and July 2013), slippage and commission were not used in the testing.
The strategy described in this article was formerly
sells-off in price. Some traders trade pullbacks intra-day
known as the 5x5x5 Portfolio Method because it bought
or on longer time frames but the majority trade them on
stocks which closed five per cent below their 5-day
daily bars identifying stocks that they feel have pulled
Moving Average (MA) on a limit five per cent below the
back too far and will likely regain their upward trend.
close and exited above the 5-period MA. Since that time
There are numerous ways to identify pullbacks
we have expanded this strategy further to include multiple
ranging from simply eye-balling a chart all the way up to
Moving Averages as entry and exit triggers, along with
using indicators such as Fibonacci numbers. Even though
multiple levels of pullbacks, with multiple levels of intra-
these techniques work for some traders, what we want
day pullbacks. Then we looked at various exits points to
to do is to be more precise. We want exact rules in place
allow for even more flexibility in your trading.
and we want to see robust quantifed test results from

2001 to 2011 (our test period). We also want to see the
What Is a Pullback?
strategy showing solid test results in the majority if not
A pullback is a security which has moved higher and then
all of the many combinations of parameters that we are
because of profit taking (and numerous other reasons)
testing on. This way you as a trader can then customise
46
the strategy to fit best into your daily
F1) Pullback Trade Example
trading plan.
When
trading
short
term
pullbacks, the best results occur
29.00
when you hold the position for at

least a few days. Often stocks pull
28.00
back sharply and snap back strongly.

There is no way of knowing ahead of
27.00
time how far that upward move will

be so having exit rules in place ahead
26.00
of time which allow for the rally to

play out is the best way to trade.
25.00
Long Pullbacks: The Rules
The Long Pullbacks Strategy rules
24.00
are simple and precise:
23.00
1. The stock must be above $5 per

share and close above its 200-
22.00
day simple Moving Average.

This signifies its in a longer term
uptrend.
2. The stocks average daily volume
RSI
70.00
over the past 21 days (one trading
30.00
month) must be at least 250,000

shares per day. This assures we
are in liquid stocks.

3. The stocks 100-day historical
volatility is above 30.
4. The
stocks
10-day
Average
Directional Index (ADX) is above
10
At point 1, MAKO closes down two days in a row and more than five per cent below its 4-period Moving
Average. The next day, we look to buy on a limit order seven per cent below todays close (point 2). At point
3, the stock moves sharply higher and closes with its 2-period RSI above 70. This is the signal to lock in your
gains on the close.
Source: www.tradestation.com
30.
5. The stock has closed down two
or more days in a row.
6. Today the stock must close at least X per cent (X = 4,
Rule 7 makes everything gel. Whereas most pullback
5 or 6 %) below its Y-period Moving Average (Y= 4, 5,
methods may have small edges, this rule assures that the
or 6). This will be clearer once you see the examples.
pullback is even deeper and because it is occurring intra-
7. If the above rules are met, buy the stock tomorrow on
day it is often accompanied by a lot of fear or even panic.
a further intra-day limit Z per cent below yesterdays
This panic creates the opportunity (behavioural finance is
closing price (Z = 4 % - 10 %).
quantified here).
8. Exit the position when it closes above its 3-period
Rule 8 assures that we have an exit in place. We state
simple Moving Average, exiting at the closing price.
this quite often because it is a pet peeve. Everyone likes to
We also show the test results exiting the same day,
tell you when to get into a stock. Few tell you when to get
on the first up close, and using 2-period RSI exits (the
out and even fewer have quantified, structured, disciplined
goal here is to empower you with as many choices as
exit rules. Rule 8 gives you the exact parameters to exit
possible).
backed by a decade of historical results.
Let us now go deeper into Rules 6 to 8. Rule 6 is there
Examples
to identify the pullback. A stock that closes far below its
Let us look at a chart example. In Figure 1, MAKO Surgical
short term Moving Average is a good short term pullback.
(MAKO) was trading above its 200-day Moving Average and
47
strategies
had historical volatility and ADX readings above 30. We use
two per cent per trade. This includes all trades. It is the
a 4-period MA (for parameter X), a close at least five per cent
number of winning trades times their average gain minus
below the MA (for Y), and a buy limit order seven per cent
the losing trades times their average loss divided by the
below the previous days close (for Z). This is what happened:
total trades. So, if the system has a total of 100 trades and
60 per cent make two per cent on average and 40 per cent
Point 1: MAKO closes down two days in a row and
lose one per cent on average you have 120 per cent minus
more than five per cent below its 4-period Moving
40 per cent divided by 100. In this example the average
Average. The next day, we will look to buy on a limit
gain per trade is 0.80 per cent.

We now look at the top 20 returns per variation of The
order seven per cent below todays close.

Point 2: The stock sells off more than seven per cent
Long Pullbacks Strategy (Table 1). These are the returns
from the previous days close and a Long Pullbacks
for the eleven year period 2001 to 2011. The gains and
signal is triggered.
edges have been substantial, especially for the largest
Point 3: MAKO moves sharply higher and closes with its

2-period RSI above 70. Lock in your gains on the close.
intra-day pullbacks; those which have pulled back eight

and ten per cent.
The first column shows the number of trades that
Test Results
triggered during that period of time. To assume a fill was
When traders ask what is a good edge (meaning the
made in the testing the stock had to trade at least one
average gain per trade) on a short term basis, meaning
cent under its limit price (it need to trade through the
under a week, the rule of thumb is 0.5 per cent up to
simulated order).
Column 2 shows you the average
gain per trade (the average edge) of
all trades. As we just mentioned 0.5 to
T1) Top 20 Strategies Based on Average Profit
two per cent are considered excellent.

No. of
Trades
Avg. %
Profit
Avg. Trading
Days Held
% Winners
Exit
Methodology
MA
Length
Stretch
Limit
Entry %
808
6.75%
6.24
75.62%
RSI2>70
6%
10%
751
6.55%
6.35
74.17%
RSI2>70
6%
10%
948
6.41%
6.26
74.89%
RSI2>70
5%
10%
trades which were profitable. Most
632
6.35%
6.48
73.42%
RSI2>70
6%
10%
traders like to get to 55 to 60 per cent
1071
6.27%
6.18
75.54%
RSI2>70
6%
9%
correct. The majority of the top 20
1016
6.20%
6.22
75.00%
RSI2>70
5%
10%
variations here are above 75 per cent
829
6.19%
6.34
74.19%
RSI2>70
6%
9%
correct.
982
6.14%
6.30
74,34%
RSI2>70
6%
9%
638
6.12%
3.66
77.27%
RSI2>50
6%
10%
used. We ran this test using a 4-, 5-,
757
6.06%
3.67
76.62%
RSI2>50
6%
10%
and 6-day simple Moving Averages.
816
6.03%
3.64
77.08%
RSI2>50
6%
10%
As you can see, all are valid.
1261
6.00%
6.20
75.42%
RSI2>70
5%
9%
839
5.99%
3.53
77.12%
RSI2>50
6%
9%
865
5.91%
6.43
72.95%
RSI2>70
5%
10%
955
5.88%
3.59
77.17%
RSI2>50
5%
10%
1215
5.87%
6.22
74.73%
RSI2>70
4%
10%
1245
5.85%
6.18
75.10%
RSI2>70
4%
10%
1350
5.84%
6.13
75.41%
RSI2>70
5%
9%
Column 8 is the percentage
994
5.79%
3.54
76.86%
RSI2>50
6%
9%
distance from the close that the limit
1086
5.73%
3.49
77.81%
RSI2>50
6%
9%
order is placed. So if a stock qualifies
These are the best 20 setups based on average profit for the eleven year period 2001 to 2011. The gains and
edges have been substantial, especially for the largest intraday pullbacks; those which have pulled back eight
and ten per cent.
Source: Connors, L./Alvarez, C., The Long Pullbacks Strategy, Connors Research, LLC, 2012
48
In the Long Pullbacks strategy, the top

20 variations all have edges above
5.70 per cent per trade!
Column 4 is the percentage of
Column 6 is the Moving Average
Column 7 is the percentage

distance the stock closed under its
Moving Average. We used four per
cent below the MA, five per cent
below the MA, and six per cent
below the MA. Again, as you can see,
all are valid.
as a set-up the night before, you

place in your limit order the next
morning. We tested four, five, six,
seven, eight, nine, and ten per cent.
strategies
It should come as no surprise that the higher the
Strategy Snapshot
limit order, the greater the fear, and the greater the
Strategy name:
Pullback Trading
Strategy type:
Countertrend Long
Time horizon:
Day- and Swing Trading, holding period 1-7 days
Setup:
Price > $5, Close > MA(200), average daily volume

(21) > 1,000,000, historic volatility > 30, ADX(10)
> 30, 2 down closes in a row, close X% below
Y-period MA (X, Y: 4, 5, 6)
Entry:
Buy the stock on the open tomorrow if setup is met

on a further intraday-limit Z% below yesterdays
close
Stop-loss:
None; use of options recommended
Take profit:
RSI(2) > 70, RSI(2) > 50, Close > MA(3), first up
close, intraday exit
Trailing stop:
matter what the year was. It simulated all trades for
Risk and money

management:
1-2% risk per trade as a percentage of trading

capital
eleven years and as you can see the edges have been
Average hit rate:
61.19%-78.29%
extremely large.
Average trade:
1.61%-6.75%
edge. Larger limit orders get filled less often, especially

in low volatility, quiet markets but tend to thrive in high
volatility markets where fear is the greatest. When you
decide which variation to use for your own trading you
may want to adjust the size of the pullback to reflect the
current market conditions. In low volatility markets, you
may want to look at six, seven, or eight per cent. In high
volatility markets nine and ten per cent may be the most
appropriate.
Please note though that these tests here do not
differentiate between market conditions. Each individual
variation assumed these were the rules you used no
In Table 2 we see the 20 highest performing variations

sorted by per cent correct. The
numbers are extremely high with
the 20th best performing variation
T2) Top 20 Strategies Based on Per Cent Winners
on a per cent correct basis coming

No. of
Trades
Avg. %
Profit
Avg. Trading
Days Held
% Winners
Exit
Methodology
MA
Length
Stretch
Limit
Entry %
820
5.55%
2.49
78.29%
C>MA3
6%
10%
1092
5.24%
2.41
78.11%
C>MA3
6%
9%
larger the limit order, the greater the
959
5.40%
2.47
78.10%
C>MA3
5%
10%
performance.
1276
5.56%
3.46
77.98%
RSI2>50
5%
9%
1282
5.06%
2.41
77.85%
C>MA3
5%
9%
The Role of Exits
1086
5.73%
3.49
77.81%
RSI2>50
6%
9%
Different exits will give different test
1679
4.95%
3.39
77.67%
RSI2>50
5%
8%
results. The first place traders look is
1430
5.16%
3.41
77.55%
RSI2>50
6%
8%
the size of the edge and use the exit
1284
4.55%
1.66
77.49%
Up Close
5%
9%
that provides the greatest edge. But
960
4.84%
1.71
77.40%
Up Close
5%
10%
839
4.82%
1.66
77.35%
Up Close
6%
9%
823
4.97%
1.70
77.28%
Up Close
6%
10%
1096
4.67%
1.65
77.28%
Up Close
6%
9%
638
6.12%
3.66
77.27%
RSI2>50
6%
10%
638
5.48%
2.50
77.27%
C>MA3
6%
10%
average) smaller edges but get out
759
5.48%
2.51
77.21%
C>MA3
6%
10%
of positions quicker, lessening the
1924
4.79%
3.35
77.18%
RSI2>50
6%
7%
overnight risk. The Long Pullbacks
855
5.88%
3.59
77.17%
RSI2>50
5%
10%
strategy is extremely robust and it
839
5.99%
3.53
77.12%
RSI2>50
6%
9%
was created to allow every trader to
638
4.92%
1.73
77.12%
Up Close
6%
10%
in at 77.12 per cent all the way up

to the best coming in at 78.29 per
cent. A common theme again is
the size of todays limit order. The
another factor is how long you want

to tie your money up. RSI 70 exits
often give the highest edges but tie
the money up the longest.
Three-day exits and especially
first-up-close exits often show (on
decide for themselves which entry

and exit variations they want to use
based upon their own personal style
of trading. Table 3 shows the top 20
test results for each exit type.
In Table 2 we see the 20 highest performing variations sorted by per cent correct. The numbers are extremely
high with the 20th best performing variation on a per cent correct basis coming in at 77.12 per cent all the way
up to the best coming in at 78.29 per cent. A common theme again is the size of todays limit order. The larger the
limit order, the greater the performance.
49
STrATEGiES
not like to hang onto positions too
T3) Top 3 of Each Exit Type (Based on Average Profi t)
long, this exit serves its purpose.

No. of
Trades
Avg. %
Profit
Avg. Trading
% Winners
Days Held
Exit
Methodology
MA
Length
Limit
Entry %
Stretch
823
4.97%
1.70
77.28%
Up Close
6%
10%
638
4.92%
1.73
77.12%
Up Close
6%
10%
960
4.84%
1.71
77.40%
Up Close
5%
10%
820
5.55%
2.49
78.29%
C>MA3
6%
10%
variations.
638
5.48%
2.50
77.27%
C>MA3
6%
10%
3.
759
5.48%
2.51
77.21%
C>MA3
6%
10%
This exits a position on the close
638
6.12%
3.66
77.27%
RSI2>50
6%
10%
when the stock closes above its
757
6.06%
3.67
76.62%
RSI2>50
6%
10%
2-period RSI reading of 50. With this
816
6.03%
3.64
77.08%
RSI2>50
6%
10%
exit we begin seeing larger average
808
6.75%
6.24
75.62%
RSI2>70
6%
10%
gains per trade and slightly longer
751
6.55%
6.35
74.17%
RSI2>70
6%
10%
948
6.41%
6.26
74.89%
RSI2>70
5%
10%
977
1.87%
63.05%
Day Trade
5%
10%
1,069
1.84%
64.27%
Day Trade
5%
10%
850
1.84%
64.12%
Day Trade
6%
10%
Table 3 for each exit type shows the setups with the highest average profit. Traders should use the exit
strategy that best fits into their daily trading plan.
2.
Close above the 3-period MA
We like this exit. It does a nice job

between balancing getting quickly
out of a position, with good average
gains per trade, especially for the top
RSI 50 Exit
holding periods.
4.
RSI 70 Exit
This exits a position on the close when

the stock closes above its 2-period
RSI reading of 70. Heres we see the
largest edges. Historically holding a
position for a few extra days was well
rewarded by providing the largest
Long Pullbacks edges, especially using
nine and ten per cent limit orders.
5.
1.
Intraday Exit
Up Close
This means exiting the position on the close of the
The average gain per trade is lower than what we
same day they were entered. The edges with Long
have seen up to now. But the length of time in the
Pullbacks on an intra-day basis are not as large as
trade is extremely short. For those traders who do
they are when holding positions overnight but they

have healthy intra-day edges and these edges are
significantly higher than most day traders are used to
Laurence Connors
Larry Connors is the chairman and founder of
Connors Research. He is also the founder of
TradingMarkets.com which has been providing
traders with cutting edge trading research for
over a decade now. He has over 30 years in the
financial markets industry. His opinions have been
featured in the Wall Street Journal, Bloomberg,
Dow Jones, & many others. For over 15 years, Larry
Connors and now Connors Research has provided
the highest-quality, data-driven research on trading
for individual investors, hedge funds, proprietary
trading firms, and bank trading desks around the
world. He has also recently co-authored a new book
of statistically-backed trading strategies called
How Markets Really Work, 2nd Ed.
having. Most day traders are very happy with 0.25 to

0.50 per cent edges per trade. The top Long Pullback
Strategy variations go far beyond that. The edges
range from above 1.61 per cent per trade all the way
up to 1.87 per cent gain per trade.
Connors Research
Connors Research is a financial markets research company.
It owns a proprietary core database of over 8.4 million
equity trades a unique, hand-groomed repository of
data on short term market behaviour that underlies all of
its products. Connors Research continually adds to and
Cesar Alvarez
improves this data, and uses it to create model-driven,
Cesar Alvarez is Director of Research and Managing Partner of Connors Research as

well as a private trader. He also co-authored several books on trading including How
Markets Really Work, 2nd Ed. and Short Term Trading Strategies That Work.
giving traders a professional edge.
50
quantitatively validated trading methodologies aimed at
strategies
How to Trade Options Effectively
The Self-Hedging Strategy

More often than not, private investors use the leverage effect of options or warrants for speculative rather than hedging purposes.
The classic way of using puts to hedge long positions and calls to hedge short positions is known to most investors. However, using
options to manage risk may also be done by simply using them as an alternative to direct investment with their leverage, though,
being used to limit risk rather than increasing it. Read for yourself how such a position does its own hedging, as it were.
Some Basics
of underlying instruments that you could buy with the
For the sake of simplicity, there is often no distinction
amount earmarked. You would then participate just
made in this article between options and their securitised
as much in the performance of the underlying as you
version, warrants. However, you should know the
would if you had invested the full amount directly in the
following: While options are traded on futures exchanges
underlying, but could invest the free balance elsewhere
like the Eurex, warrants are products issued by banks that
while significantly limiting your risk of loss in the position.
can also be traded on conventional stock markets. While
Using put options for a short position allows you to avoid
it is the contract size that needs to be paid attention to in
any potentially unlimited risk of loss that would exist if
the case of options, the exchange ratio is similarly relevant
the underlying asset were to be sold short.
to warrants. The leverage effect of options is caused by

the smaller amount of capital used when compared to a
Examples
direct investment. On the one hand, this leverage can be
The following examples are designed first to illustrate the
used for speculative purposes, in which case investors
strategy of using the leverage effect of options to reduce
invest the entire earmarked amount in options on the
your risk compared to the purchase or short sale of the
underlying asset rather than in the underlying.
underlying asset rather than increasing it (versions 1a
On the other hand, the leverage effect can also be
and 2a). This is followed by that strategy being compared
used to reduce the capital you invest, that is your risk.
to a hedged direct investment in the underlying or a
Imagine buying only as many options as the number
short sale of the underlying (versions 1b and 2b). The
52
strategies
illustration is simplified by fees, commissions, and any
T1) Expectation: adidas to rise
potential borrowing costs being disregarded.

Share price at maturity
Direct Investment
Version 1a
Version 1b
50 EUR
-1974 EUR
-1206 EUR
-564 EUR
Underlying Asset
82.9 EUR
0 EUR
-132 EUR
-510 EUR
If you want to invest 5000 in adidas shares, for example,
110 EUR
1626 EUR
1494 EUR
1116 EUR
Version 1a: Purchase of Call Options Instead of the
you could buy 60 shares for that amount of money at a

price of 82.90. However, if instead you were to invest
the amount in call warrants on adidas with a 13-month
term and at a 65 base price, this would enable you to
Using the sample positions, the table shows profits and losses of the different
versions for the implementation of a long expectation at different stock prices
at the maturity of the options. Each position was created at a share price of
82.90 EUR.
purchase up to 2488 warrants at 2.01 each and an

exchange ratio of 1/10. So buying the warrants would
allow you to participate in the performance of up to 248
adidas shares, even though those 5000 would actually
T2) Expectation: adidas to fall
enable you to buy just 60 shares.

Share price at maturity
Short Selling
Version 2a
Version 2b
match the number of shares that you could buy with that
50 EUR
1974 EUR
1758 EUR
1452 EUR
amount, you would reduce your risk by using the leverage
82.9 EUR
0 EUR
-216 EUR
-468 EUR
effect. So in that case you would buy only 600 warrants
110 EUR
-1626 EUR
-1242 EUR
-468 EUR
Now if you only bought as many warrants as would
at the exchange ratio of 1/10 and have the opportunity to

participate in the performance of 60 adidas shares, even
though you have only used 1206 instead of 5000. This
includes a premium of about three per cent per year. The
Using the sample positions, the table shows profits and losses of the different
versions for the implementation of a short expectation at different stock prices
at the maturity of the options. Each position was created at a share price of
82.90 EUR.
benefits are obvious: You can only lose 1206 instead of

5000 and have the remaining 3794 available for other
investments to spread your capital more widely.
short-selling 60 adidas shares. At a base price of 100
Version 1b: Purchase of the Underlying While Using Put
euros, the options are far in the money and the buyers
Options to Secure Your Position
premium is correspondingly low, about three per cent
The classic use of options is securing a position in the
a year. So at an exercise price of 2.07 you would only
underlying. So the amount of 5000 would initially be
invest 1242 and benefit from the price slump of 60
invested here directly in the underlying, which means that
adidas share for a period of 13 months without being
60 adidas shares would be bought at a price of 82.90. At
exposed to the unlimited risk of loss of a short sale of
the same time, this long position would be secured by 600
the shares.
put warrants at the exchange rate of 1/10. A put warrant

with a strike price of 82, that is at the money, costs 0.85,
Version 2b: Short Sale of the Underlying Asset While
which means that the hedging costs 510 for a period of
Using Call Options for Hedging Purposes
13 months. This represents a premium of approximately
In the classic version, a short position of 60 adidas shares
ten per cent a year. However, price losses of less than 82
would be entered at a sale price of 82.90 and hedged
would be secured. So the maximum amount you will risk
with call options. A call warrant with a strike price of 82,
is 60 x 0.90 (equivalent to 82.90 purchase price - 82
that is minimally in the money at an exchange ratio
base price) + 510 (cost of the put options). So altogether
of 1/10 costs 0.87. 600 call warrants are required to
you could lose a maximum of 564, but a total of about
hedge the short position for 13 months, which means that
5500 euros would be tied up, namely the underlying
hedging will cost 522 euros, representing a premium of
investment and options.
approximately ten per cent a year. Losses incurred by the

short position at share prices of more than 82 would be
Version 2a: Purchase of Put Options Instead of Short
secured. So the maximum amount being risked will be
Sale of the Underlying
522 (cost of call options) - 60 x 0.90 (corresponding to
If you anticipate falling prices, you could buy 600
a sale price of 82.90 - a base price of 82). Overall, you
put warrants at the exchange ratio of 1/10 instead of
could lose a maximum of 468 here.
53
STrATEGiES
Alexander Mantel
Mr Mantel is a lawyer who has been studying
the financial markets since the age of 17. While
the focus of his interest is on derivative products
and new developments in the financial industry,
he is always open to any interesting challenges.
finanzlabor@gmx.de
lower premium for the versions 1a and 2a is bought

by the options used being relatively far in the money.
While this effectively causes more capital to be risked
than is the case in the hedging-version options, there
is still far less capital invested than in the case of a
direct exposure to the underlying. Tables 1 and 2 show,
how each of the versions develops in various scenarios
when compared to a direct investment. For the sake of
simplicity, the tables are invariably based on the end of
the term of the options.
Comparison
Versions 1a and 2a are characterised by low financing
Conclusion
costs in the form of a premium. They also have the
Basically, many investors are familiar with the possibility
advantage of only one position being required to
of achieving a limitation of risk by combining a position
be opened. The versions 1b and 2b correspond to
in the underlying with a hedging position in options on
the classical hedging model. So they consist of two
this underlying. The purpose of this article, however, was
positions the direct investment and the hedging
to prove that it is also possible for any risk to be limited
position made up of options, which ties up additional
by exclusively investing in options as an alternative to
capital. Another drawback is that the cost, that is the
the exposure in the underlying. The only prerequisite is
premium of the hedging position made up of at the
that the leverage effect of the options not be exploited
money options amounting to approximately ten per cent
for speculative use, but in keeping with leverage for
a year, will lead to an unfavourable shift of the break-
reducing the capital invested. Compared to the direct
even point since that premium is higher. So the price of
investment in the underlying if necessary, combined
the underlying needs to move far more in the direction
with hedging options significantly less capital will
wanted than is the case with versions 1a and 2a in order
be tied up. The remaining free capital can be invested
for the position to enter the profit zone. However, the
elsewhere. Indirectly, this diversification will lead to a

further risk reduction. Compared to the classic version of
using options to hedge a position in the underlying asset,
Strategy Snapshot
that strategy appears to be attractive. Instead of having to

make another hedging transaction alongside the original
Strategy Name:
Self-hedging strategy
Investment Universe:
All underlying assets for which options or

warrants are available
Trade Direction:
Both long (with call options) and short positions

(with put options) possible
and does so at much lower cost and with less capital
Time Horizon:
Predominantly medium to long term
options.
Setup:
First, a determination is made what amount of

the underlying asset would be bought or sold
with a direct investment. Instead of opening the
position in the underlying, only so many options
are purchased as is necessary to have the
desired amount of the underlying
Entry:
Depending on personal approach, various

technical signals or even fundamental criteria
may play a role
Position Size:
Position size according to the amount of the

underlying to be covered; contract size or
exchange ratio of the options should be paid
attention to
Exit:
Maturity of the options or previous liquidation of

the position when target price was reached
Risk and Money

Management:
Maximum loss is limited to the option price,

conduct risk management accordingly
trade, solely investing in options as an alternative to

direct investment already offers a built-in self-defence
tied up than is the case with hedging using at the money
However, it should be kept in mind that in the
strategy presented by versions 1a and 2a more capital
will be risked than in the classic hedging model
despite less capital being tied up. This is what traders
need to pay attention to in their risk management. In
addition, investors will have to forgo possible dividend
payments that will not materialise in a sole investment
in options without any investment in the underlying
existing alongside it. As with any investment in options,
it should, of course, be kept in mind that, unlike the
direct investment, this is a long term investment. So for
a trade to be successful, the targeted performance of
the underlying needs to be achieved within the term of
the options.
54
STrATEGiES
The volatility-Breakout Strategy

How to Enter a Trade Before the Big Move Starts
David Pieper
The cyclical progress of the volatility of financial markets plays
David Pieper is a CIIA and has been interested in

stock markets since the end of the Nineties. He
concentrates on trading with CFDs and is a free
lance author.
an important role for every trader. Especially the change of
david.pieper@traders-mag.com
phases of low movements (low volatility) to phases of strong and

unpredictable movements (high volatility) offers good possibilities
to active market participants for opening positions. Of course it
is necessary to have a systematic approach to recognise such
situations. The historical volatility ratio can be of great help.
56
strategies
The direction of the breakout cannot be predicted for sure in

advance, therefore the trader should place stop orders long and
short to profit from the coming impulse.
The historical volatility measures the fluctuations of
That means the current volatility is half of the long-
an underlying stock within a certain period of time.
term volatility a good sign that price dynamic may
It provides information about the past fluctuations
increase shortly.
based on the statistical value standard deviation,

where the fluctuation of a price around an average
Step 2: Trade-Planning
value is measured. There will be extreme deviations
If the trader has found an underlying with a low volatility
now and again to the upside or to the downside that
ratio he can plan the trade precisely. The direction of
predict a reversal movement a concept that is used
the breakout cannot be predicted for sure in advance,
with the Bollinger bands. The glance in the rear-view
therefore the trader should place stop orders long and
mirror alone offers no advantage for the trader only

if you compare the current volatility, for example over
ten periods, with the long term usual volatility over
Historical Volatility Ratio (HVR)
for example 100 days, you can make a statement, if
Historical volatility which means the realised volatility of
a stock is in a phase of unusually high respectively

low volatility. It is interesting to compare the two
periods of volatility to define clearly, what high or
low means. An established indicator is the so-called
historical volatility ratio, short HVR.
the past days and weeks is measured in two different

time frames and calculated as quotient. If the short term
volatility differs considerably from the long term volatility,
the indicator will increase or decrease considerably. Our
strategy is implemented if a strong decrease of the ratio
signals a slow-down of the trading ranges.
Step 1: Identify Low Volatility Ratios

This HVR key figure is especially
useful to determine short term
breakouts
of
volatility
and
F1) DAX Hourly Chart with HRV (10/100)
therefore it is the basis for a

trading strategy. We measure the
historical volatility of two different
periods
and
calculate
it
as
quotient. If the short term volatility

differs strongly from the long
term volatility, the indicator will
increase or decrease considerably.
A strong increase of the volatility
ratio
shows
that
the
trading
ranges of the current periods are

considerably
larger
than
those
measured over a longer period

of time. A strong decrease of this
ratio signalises the calming of the
trading ranges. The latter signal
shall be the basis of our trading
strategy. A value of 0.5 or smaller
is in general a good threshold.
The historical volatility ratio shows the relation of the current volatility (ten days) to the long term volatility
(100 days). If the indicator reaches a value of 0.5 it is a signal for an imminent breakout. From the end of April
to the beginning of May 2013 there were three signals for long trades (see marks).
Source: www.tradesignalonline.com
57
strategies
A useful additional requirement
F2) DAX 10-Minute Chart
prior to the entry of a trade is

an
inside
day
respectively
the
NR4-signal of Toby Crabel (more

information in classic strategies in
TRADERS June 2013). The latter
describes a candle that represents
the narrowest trading range of the
past four periods another hint
that volatility may increase shortly.
If
such
pattern
occurs,
the
probability of success will increase.

At the same time you can place the
stop wisely and that leads to an
improvement of the risk-reward
ratio. The glance at the higher
time frame chart should be done
The glance at the shorter time frame trade 1 in Figure 1 enables the precise stop placement during the
trade. After the entry (E) the stop was trailed twice. We closed the position at the end of the trading day (A).
as well to add possible supportor resistance levels to the trade.

If you trade stocks you should
also consider important dates like
publication of quarterly figures.
short to profit from the coming impulse. In detail this

means:
You should protect your capital against false

signals and limit the risk. Therefore, it is important
that
you place a stop-loss below the low of the
Stop-buy above the high of the signal candle
signal candle when buying. If your short signal was
Stop-sell below the low of the signal candle
triggered, the stop should be placed above the high

of the signal candle. If the trade runs into profit, you
should trail the stop to break-even first and then trail
F3) Screening Results US Stocks (10th May 2013)
it as a suggestion according to the general rules

of market mechanics on a lower time frame to protect
book profits.
Example DAX
Figure 1 shows the hourly chart of the DAX from 24th
April to 7th May 2013. Below the candlestick chart you see
the historical volatility with the settings 10/100 and the
threshold of 0.5 (red line) which is the signal line. During
the shown period there were three situations where the
short term volatility was only half of the long term one
a good sign for a future breakout. Let us take a closer
look at the first signal on 24th April. After the 2 pm-candle
the HVR reached the signal level and therefore a breakout
was in the air. Therefore we placed a stop-buy order
above the high of the signal candle at 7710 as well as a
stop-sell order at 7675.
You can use tools like stockfetcher.com to enter individual screening filters to
recognise attractive trading candidates. The picture shows the filter-code for
the HVR with the settings 6/100 and 10/100.
Source: www.stockfetcher.com
58
The glance at the lower time frame (Figure 2)

shows, that the breakout took place shortly afterwards
and therefore the long order was executed (Point
E). The big candle confirmed the buying signal and
strategies
therefore the stop (red line) could be trailed higher

at this time and the risk was considerably decreased.
After a short correction and the following new high
the stop was trailed again to secure a first part of
profit. We avoided the overnight-risk and therefore
the long position was closed at the end of the trading
Strategy Snapshot
Strategy name:
Volatility breakout
Strategy type:
Momentum breakout
Time frame:
Weekly, daily or hourly chart
Setup:
HVR < 0.5 that means an increased probability

of an imminent breakout
Entry:
Long: stop-buy above signal candle with HVR

< 0.5; short: stop-sell below signal candle with
HVR < 0.5
Stop-loss:
Above (below) high (low) of the signal candle

respectively at support/resistance
Take profit:
Close part of the position if 2 R is reached,

rest of the position with trailing stop
Trailing stop:
Manually
Risk management:
0.5% risk per trade
Average number of
signals:
depends on number of underlyings
day (point A) in profit.
Implementation with Screening Software

The strategy described here can be implemented with
the use of a screening tool. The trader has the possibility
with software like stockfetcher.com, to identify all stocks
or ETFs with a HVR of 0.5 or less with one click. Figure
3 shows the filter-code for the HVR, settings 6/100 and
10/100. Stocks that fulfil these requirements are displayed
automatically.
Conclusion
The trading strategy introduced here is neither new nor
period or you trade the daily chart the change from silent
complicated. The basic idea of the trading of breakouts in
to turbulent phases is a basic principal at the markets and
price areas with low volatility is one of the most effective
offers good chances for active traders. Especially if you
methods. Because whether you trade in a short term
watch a large pool of underlyings to find a signal.
Preview
of the next issue
Coverstory
PEOPLE
relative rotation graphs
the Wandering trader
Julius de Kempenaer and Trevor Neil developed a unique tool that shows
Marcello Arrambide is a Daytrader who
the movement of many stocks both relative to a benchmark as well as
travels the world. He has lived in ten
relative to each other. In other words, it gives traders a quick but still
countries across four continents and visited
sophisticated overview of relative movements happening on the markets.
roughly 70 countries. He speaks about his
There are four specific chart sectors allowing for convenient trade ideas.
way of trading as well as the problems
Today, even Bloomberg offers Relative Rotation Graphs in their workstation.
that arise when trading on the road.
the september issue of traDers appears on 29th august 2013.

59
BASiCS
The Psychology of Trading

Part 2: Success Starts inside
In the 03/2013 TRADERS cover story, Norman Welz, a leading expert in applied trading
psychology, described the basics for success in the stock markets. Here he continues and
observes other important effects that a trader need to be clear about. First he deals with
the importance of knowledge and how the selfish mind works. After a sidebar about the
disadvantages of trading-gurus, Welz eyes ones weaker self and finally concludes that
learning to trade affords a change in personality.
Norman Welz
Mr Norman Welz is a trading psychologist at
GodmodeTrader and is a fully-trained trader who
also runs a private psychotherapy practice in
Hamburg. He is the producer of the Better mind
Coaching Program for Traders and the TRADERS
TALK CD box of interviews. His book Trading
Psychology has made him a best-selling author.
www.bettermind.de, www.godmode-training.de
We Are Not Able to Do

Something Thats Not Part of Our Brain
The human being can only implement what is firmly
grounded in its neural network. One example: You are a
businessman and travel in China on business. Your mind
might say: Oh yes, if I talk to Chinese business partners,
I should speak Chinese.. But if you have not learned how
60
BASICS
to speak Chinese, you cannot do it.
F1) Clear Trend, but
You probably say now: Sure. But is

it really clear why? Because it is not
in your neural network. There are no
neural connections in your brain. You
have not learned to speak Chinese
no vocabulary, no pronunciation, no
grammar.
The same goes for trading. You
are not able to do things in trading
that are not already available in your
brain (in the form of a brain cell): to
understand the relations between
time frames; to find wise reversal
points in the charts; to recognise
when it is pointless to follow a trend
(Figure 1); to notice if the risk of a
trade is higher than the reward and
to be able to estimate if you risk
more or less on one trade and
What should you do in this 4-month chart of the stock of BMW? Should you speculate on increasing prices
and follow the trend or protect your profits and wait for a strong correction? Uncertainty influences the trader
again and again.
much more.
A Thought Is like a Photo Flash

Many traders are convinced that it is enough to understand
The reason is that money equals existence in our life.
things to be able to complete an action. But if that were
And existence has the first priority in our brain. The less
true, you would only have to read a good trading book
value our money has, the greater the threat to our lives.
or attend an educational seminar and you would be a
The mind automatically tries to compensate for this fear
trading professional. The objective relations of trading
impulse. Because the mind wants to have everything
can be understood within several weeks. Despite this you
under control and does not like uncertainty; it therefore
continue to fail. Why is that? Because in general a thought
forces us to buy more and more stocks although it may
is only a momentary understanding. There is a little
be completely wrong. The mind is convinced that it will
current pulse in our brain, nothing more. It is like a photo
save us from death. It is absurd, but the selfish mind does
flash: It lightens the situation for a short moment, but it is
not care. It has the unconscious task to save us and then
not enough to illuminate the environment permanently.
we can fulfil our most important task to preserve the

human race.
The Mind Is Selfish

The human ego is often deceived by this effect. We fail
If You Follow a Guru You Will Always Be a Copy
in the practical implementation, thanks to our mind. Our
Most trading beginners imitate the actions of professional
mind often pretends something that does not really exist
traders by trading their stock market newsletters. This
it does so because it just cant help it. The mind needs
way they try to get rid of the responsibility that comes
a plausible and reasonable world, where it can exist in
with trading the markets, but they fail to realise that they
a controlled manner. If that is not the case, it creates
are responsible the minute the trade is active.
this safe and meaningful world. Even if it is absurd for
Inexperienced traders often make the mistake that
example continuing to buy stocks that lose in value. No
they want to be smarter than the professional traders.
human being would buy more and more apples that rot
They trade their recommended trading signals but
away just because they are getting cheaper. But people
then they are influenced by their own emotions and
follow this impulse in the case of stock investments again
thoughts. They take profits too early or miss trades
and again.
because they have another opinion of the market
61
bASICS
If you do not have the ability to

let profits run, then it is not part
of your brain and you cannot do it.
environment. They are not even aware that they then
personality. That can be nearly as good, but most of the
trade a completely different system. Although it
time it is an inadequate copy.
may not seem that way, their active intervention has

based on their very personal experiences: things they
One Thought Is Nothing

but Smoke and Mirrors Not an Ability
experienced, inhered, learned or thought. If you trade
If you want to change your trading behaviour, you
the trading system of someone else you should know
immediately encounter an inner opponent. This power of
that no two people are the same. You only have to listen
avoidance is often called ones weaker self. If you want to
to amateur singers who interpret a song recorded by
change your behaviour or your personality, two massive
someone else. It is the imitation of the original, because
systems fight against each other: volition and ability. And
the interpretation is always influenced by ones own
our mind is in the middle and creates ones weaker self
a greater meaning. All actions that people take, are
to convince us that we are always the ones that make

the decisions. Mistake says the hedgehog and climbs
down the brush.
If you want to change familiar behaviour even if it is
negative behaviour like smoking, drinking, gambling or
binge eating but also cutting profits short the brain
perceives it like someone knocking on your door and
saying: Well, I really like your flat, please move out. I
want to live here now. Of course we will not move out
(habit) only because the new one (mind) likes our flat.
There are other strategies necessary to reach the goal.
The same goes for unnecessary trading behaviour. If
you do not have enough discipline for a certain behaviour,
you do what you can do instead. Therefore you never
trade falsely but always the way you can. If you want to
improve your trading you have to control yourself: How
do I behave and how do I want to behave? For example
if you always let losses run, you need more than pure
brains. Because then everybody would say: From today
on I trade like I have to to be profitable. And then you do
it! But as already mentioned, a thought is not the ability
but only the thought. The ability is a verifiable part of our
brain in the form of brain cells. It is part of our body,
like an arm, a nose or feet. A thought is nothing
smoke and mirrors. I am telling you explicitly: If you
do not have a certain ability in your brain, if it is not
part of your neural network, you do not have it. You
may have another ability, but doubtlessly, it will not
lead to success.
BASICS
If you do not have the ability to let profits run, then

it is not part of your brain and you cannot do it. The
our brain changes as slowly as a supertanker changes

course.
pure intention that it would be wise

to do so to earn more money than
you lose, is not enough. It is that
F2) Solarworld in Free Fall
simple and at the same time so

crucial!
Learning to Trade Means

a Change in Personality
If you ask yourself why trading
is so difficult, there is only one
answer: Because nothing in life is
more difficult than to change your
personality. If you want to change
your personality you need a very
good reason. Otherwise the old
habit has no interest in moving
out of the comfortable penthouse
in your brain. If you want to adapt
a new ability you need a lot of
time, patience, strategies and a
very convincing reason. Because
You should never cheapen a stock. The stock is not getting better because price is getting cheaper.
63
BASiCS
Trading Journal:
Thomas Bopp
26th April 2013 Call-Write Trade FTSE 100
In our new feature Trading Journal traders beginners

or professionals present actual trades which taught them
something special. It is Thomas Bopps turn this time.
In this trade I used the medium
F1) Sell of a Put on the FTSE 100
term sentiment signals of the whole

market to build a pure call-write
position. I used the daily chart and
I
calculated
the
market-breadth
indicators based on the stocks that

build the particular index as a whole.
In addition I used technical analysis
formations.
The Setup in the English Index

2013 is the year of new highs in
some of the most important indices.
Whereas the DAX and some other
indices built one new high after the
other, the English FTSE 100, called
Footsie, stays in a sideways range.
At the end of April the time has
A W-formation in the index has to be confirmed by the sentiment. Only then do we get a signal based on
this technical setup. We sold a put with a strike price of 5950 points (green line) below the upper 800-days
envelope (blue line). The target was at 6696 points.
Source: www.captimizer.de
64
come: The daily chart showed a socalled W-formation and the signal
line has already been exceeded.
The whole market showed a trend
BASICS
Call-writers earn money by

selling options that most likely
will be worthless at duration.
reversal to the upside based on the Advance-Decline-
pounds. The position developed better than expected
Line, but the moving signal line (25 days) in the indicator
and was bought back for safety reasons on 23rd May at
was not exceeded in order to trigger a signal. Only if the
the open for eleven points or 110 pounds. The reason
sentiment indicator exceeds this line it is recommended
was the crash in the Japanese Nikkei index. At this time
to build a position. On 26th April this signal occurred and
the option had already lost 80 per cent of its value and
we got the green light in the FTSE 100.
therefore the call-writer had achieved considerable

profits.
The Trade
What about keeping the option? Not a good idea,
Call-writers earn money by selling options that most
because the residual term of 50 days would have been
likely will be worthless at duration. If such a signal occurs
a considerably higher risk than the additional expected
you sell a put with a basis clearly below the current price.
gain. Figure 2 shows the strong down candle that caused
Therefore it is an option out-of-the-money where the
the doubling of the price of the option on this day.
price is only the time value. A put with duration until
Because of the the call-writers nearly unlimited risk you
the third Friday of July 2013 seemed like a good idea.
have to take this candle into account because you can
You received 51 points per ten pounds for this option.
never know how far prices will fall.
You needed about 6000 British pounds as margin. The
We achieved very good results by closing the
ideal basis of this option was at 5950. Figure 1 shows an
position at the market open. We gained more than five
800-days envelope (blue line) above this green line. If it
per cent based on the necessary margin within four
would have been a false signal, that would have been the
weeks.
maximum possible loss.

I used the general mirroring
technique
of
W-formation
to
F2) Open: We Bought Back the Option with Considerable Profit
calculate the minimum target in the

index. The FTSE 100 should rise to
at least 6696 points. As it has not
yet generated a new high of several
years, a sideways tendency was also
possible. But in any case the position
would have been a success because
of the daily time value loss which
is good for call-writers. But the stock
markets looked bullish worldwide
and I speculated that there would
be a breakout in the FTSE 100. The
position was built shortly before
the weekend. Therefore the option
already lost a little in value until the
following Monday and I generated a
little book profit.
Target Outreached
On the following Monday the option
had already lost ten points or 100
On 23rd May 2013 the Japanese Nikkei lost more than seven per cent, therefore the put-option was closed at
the open. We earned nearly 80 per cent of the premium.
Source: www.captimizer.de
65
bASICS
The Traders Technical Arsenal

Common Indicators in Meta Trader Part 2
Following part 1 of the series titled Common Indicators in the Meta Trader (TRADERS 06/2013),
Part 2 discusses the Average Directional Movement Index (ADX), the Average True Range (ATR), and
the Awesome Oscillator (AO); as they work in Meta Trader, which continues to increase in popularity
(especially version 4.0). In most cases, the indicators default parameters are used.
The Average Directional Movement Index (ADX)
50 et cetera show a very strong bias. Since trendless
Created by Welles Wilder and introduced in his book
markets are often unfavourable to those who follow the
called New Concepts in Technical Trading Systems
line of the least resistance, it would be wise to stay off a
(1978), the ADX then looked futuristic and has now
market when the ADX line is below level 30. This is how
been tested and trusted. In the book a number of other
we are spared from the ordeal of the consolidating prices.
important indicators were featured. The ADX was created
Although when the ADX line goes towards level 55 or 60,
to play the commodity markets, but it can also be used
there may be a temporary pullback in the extant bias.
successfully in stock and currency markets. By clicking on
There are two other lines in the indicator called
the settings of the indicator, you are able to change some
Positive
colours and parameters to your taste. The ADX line itself
Directional Indicator (-DI). It just happens that, when the
shows the strength of a bias, without giving emphasis
+DI is above the -DI, it indicates the supremacy of the
to the direction of the bias. For example, if the ADX line
bulls, whereas the -DI situated above the +DI indicates
is moving above level 30, it shows that the current bias
the supremacy of the bears. This means that while the
is getting strong. So any readings above levels 40, 45,
ADX line can be used to determine the stamina of a bias,
66
Directional
Indicator
(+DI)
and
Negative
BASICS
the situation of the +DI and -DI can
F1) The ADX as a Complete Trading System
be used to determine whether to go

long or to go short.
For you to harness gains from
the events that move the markets,
it is not mandatory that you are
aware of the reasons behind all the
events. It is like the more you are
aware of them, the worse off you
are. Ultimately, the price direction is
what matters, not what we feel may
happen. In any case, let us examine
two important uses for the ADX.
Example 1: In Figure 1, you see
how the ADX is used as a complete
trading system on the GBP/JPY
You can see how the ADX is used as a complete trading system on the GBP/JPY 4-hour chart. The ADX period
14 was coloured blue, while the +DI green and the -DI red. You see that the bias is strong whenever the ADX
line is above the level 30 or more. In addition, notice that the market is coming down when the -DI is above
the +DI, and vice versa.
Source: www.metaquotes.net
4-hour chart. The ADX period 14 was

coloured blue, while the +DI green
and the -DI red. Please pay attention
to that chart; you would see that the bias is strong
to note that the ATR gives an indication of the market
whenever the ADX line is above the level 30 or more.
volatility rather than the direction. This means that, unlike
In addition, you would notice that the market is coming
Moving Averages and the ADX, the ATR only showcases
down when the -DI is above the +DI, and vice versa. You
the intensity of the current volatility, rather than showing
would have noticed that the most favourable positions
whether the main trend is bearish or bullish. Significant
would have been taken when the ADX line is above level
biases in the markets tend to come with significant
30 while there is a sell signal or buy signal as given by
ranges (or significant True Ranges, hence the indicator
the positions of the -DI and +DI. It is noteworthy that there
name). The ranges tend to become narrow in noiseless
is not much movement whenever the ADX line is below
markets. Therefore the ATR gauges the significance of a
the level 30.
bias giving a range increase during an extremely volatile
Example 2: Another way of using the ADX is to

confirm what the other indicators are saying. In this
bullish outbreak or a range increase during an extremely

volatile bearish outbreak.
example, we examine the use of

the ADX with a Moving Average.
In Figure 2 (on the same GBP/JPY
F2) The ADX Used to Confirm the Signals on the SMA
4-hour chart), the 20-period Simple

Moving Average is used. Basically,
a bullish bias is assumed when the
price crosses the SMA 20 (colour
red) to the upside, and a bearish bias
is assumed when the price crosses
the SMA 20 the downside. Looking
at the chart, you would see when a
trade signal could be taken and when
it should be ignored, considering all
the above rules.
The Average True Range (ATR)

The ATR was introduced by Welles
Wilder, and it has become a valuable
indicator since then. One needs
Another way of using the ADX is to use it to confirm what the other indicators are saying. In this example,
we examine the use of the ADX with a Moving Average. Basically, a bullish bias is assumed when the price
crosses the SMA 20 (colour red in chart above) to the upside, and a bearish bias is assumed when the price
crosses the SMA 20 the downside.
67
bASICS
above the prior periods high and
F3) The Default ATR on the GBP/AUD Chart
the low is below the prior periods

low, then the current periods highlow range will be used as the True
Range. This is an outside day that
would use Method 1 to calculate the
TR. This is pretty straight forward.
Methods 2 and 3 are used when
there is a gap or an inside day.
The default parameters of the
ATR on the MT4 is usually period 14
(14 days on daily chart or 14 candles
The default parameters of the ATR on the MT4 is usually period 14 (14 days on daily chart or 14 candles on a
lower time frame), plus we can see how a default ATR looks on the GBP/AUD 4-hour chart.
on a lower time frame), plus we can

see how a default ATR looks on the
GBP/AUD 4-hour chart. Please see
Figure 3.
The True Range
The Awesome Oscillator (AO)
The True Range is described as being the most significant
For the sake of simplicity, this controversial indicator
of the methods below:
will be explained in the simplest possible manner, for if

the details of the AO indicator are conveyed as they are
Method 1: Current high less the current low
documented in highly technical trading jargon (which
Method 2: Current high less the previous close (total
would appear ostentatious to beginners and certain
value)
advanced traders), they may fail to achieve our desired
Method 3: Current low less the previous close (total
ambition which is to make every trader understand the
value)
signals generated by the indicator. Like most indicators,
the Awesome Oscillator simply generates long and

Total values are useful for positive numbers, for the
short signals. The AO has a bar graph of green and red
creator of the ATR initially had it in mind to measure the
bars, with a zero line. Looking at the Figure 4, you would
distance between two extremities not a directional bias.
see the AO on the AUD/USD daily chart, with default
According to one study, if the current periods high is
parameters, just as they are in the MT4. When you move

your chart forwards, you would see
how the indicator shows long and
short biases.
F4) The Awesome Oscillator on the MT4
Here is the computation for the AO:

It is a Simple Moving Average (SMA)
period 24, plotted through the central
points of the bars (High + Low) / 2,
and subtracted from the SMA period
5, graphed across the central points
of the bars (High + Low ) / 2.
MEDIAN PRICE (MP) = (HIGH+LOW)/2
AO = SMA(MP, 5) - SMA (MP, 34)
Like most indicators, the Awesome Oscillator simply generates long and short signals. The AO has a bar graph
of green and red bars, with a zero line. Here, you would see the AO on the AUD/USD daily chart, with default
parameters, just as they are in the MT4. When you move your chart forwards, you would see how the indicator
indicates long and short biases.
68
The Awesome Oscillator under Fire

The AO indicator has come under
fire by its critics. Detractors say that
it is just another indicator, and so
BASiCS
there is nothing awesome about it. But we should not
Azeez Mustapha
forget that it is just an indicator, and it may be more

sensible to combine it with other technical factors/
Azeez Mustapha is a trading professional, an

official analyst and representative at Instaforex
Companies Group, a blogger at ADVFN.com, and
a freelance author for trading magazines as well
as a provider of trading signals at a number of
websites.
indicators when using it. When your trade has sensible

positive expectancy incorporated into it, it makes you
smaller losses during losing periods and larger gains
azeez.mustafa@analytics.instaforex.com
during winning streaks. The chance that a trade would

move in your favour is never 100 per cent, so when you
include positive expectancy with the AO, you have a
huge edge. When you are given an equal chance to face
negativity and positivity, you will come out victorious
to the direction of the indicators. Do you have to be able
if you capitalise on your positivity and truncate your
to predict the future with an utmost certainty before
negativity. By effectively controlling risk and using
you can open a position? The more you think like this,
safe position sizing method, so that losses do not have
the worse off you are. The logic is to capitalise on your
catastrophic effects on you, you are far ahead of most
positivity.
traders, if you are disciplined enough when using the

AO.
With the indicators described above, you can have

some profits (which, however, do not always come). But
when profits do come, you make the most of it, and when
Conclusion
profits do not come, you take control of the situation.
Doing something different than what you see on the chart
Negativity is part of any business whatsoever, not trading
is suicidal. There is no certainty. This is why technical
alone, and it should be seen as an experience that can
indicators are probabilistic in nature, for events only
bring out the best in you. Positivity will inevitably follow
push prices in the direction of the indicators or contrary
negativity.
69
People
Hometown: Born Basking Ridge NJ,

but living in Shaker Heights, Ohio (outside of Cleveland)
Interests: Outside of trading, family, wine, golf
Trading Style: Top Down Technical Trader with a focus on Options
Website: www.Dragonflycap.com, www.presidiumcapital.com
The Pros Process

Part 11: Gregory W. Harmon
In this series we are asking Pro Traders about their psychological processes. Delving a little into how
it feels to them when trading. The good and the bad. How this has changed over time and what
preparation they do mentally for performing as a trader. One of the key features for us was that we
wanted traders with experience who have been through the mill over the years and of course, we
appreciate those who were kind enough to broach this subject publicly. We hope this gives developing
traders more to learn from. Each interview in this series was conducted by Richard Chignell who is
himself a trader. Please visit his blog at http://embracethetrend.com.
Richard Chignell: How long have you been trading?
arbitrage type trades, repurchase agreements versus
Harmon: I have been trading one way or another since
commercial paper all over night and took over seven
1986. I started with very short term money market
years before moving to equities.
Richard Chignell: What style of trading do you practice?

Gregory W. Harmon
I am CMT, CFA, and founder of Dragonfly Capital Management, LLC providing daily
trade ideas, technical analysis of securities markets and consulting services to the
marketplace, and Im Chief Investment Officer at Presidium Capital. Prior to that I traded
in the securities markets since 1986. I have held senior positions including Head of Global
Trading, Head of Product Development, Head of Strategy, and Director of Equity and
Portfolio Swaps Trading at Chase Manhattan, State Street Corporation and BNP Paribas.
I earned an MBA in Finance from NYU Stern School of Business and BS in Mechanical
Engineering from Cornell University.
Harmon: I am a top down technical trader. So I start with

identifying the trend and then look for how inter-market
activity can influence that trend. With a grasp of the big
picture I then search for technical set ups within my
universe of about 1000 names. When I see something
very interesting I then determine whether to play the
trade in the stock or in options.
70
People
Recognising patterns and then dealing with

them works in trading charts but also helps
in the way that you move through life.
Richard Chignell: How do you feel when a trade goes

against you?
Richard Chignell: Have you always done this?
Harmon: It sucks when a trade goes against me. Like
workers and friends and talking about other things,
every trader I know, I never want to be wrong. But of
playing sports or working out. You adapt your coping
course I am wrong a lot.
mechanisms as your life circumstances change.
Richard Chignell: How do you feel when a trade goes

for you?
Richard Chignell: If not, how have you learnt to deal

with the feelings that come up when trading?
Harmon: When a trade goes as good as could be hoped
Harmon: Added time doing the same thing also allows
for it is a great euphoric feeling. I would expect that most
you to recognise the same wins and failures and takes a
traders feel this way, too.
bit of an edge off of them. Repetition and experiencing
Harmon: No, prior to the kids it was going out with co-
the same things over and over is a good thing.
Richard Chignell: How have these feelings changed

over your trading career?
losing trades would be brushed aside and winners
Richard Chignell: Can you describe a time in your

trading life which really rammed home the point that so
much of trading comes down to psychological factors?
would have me puffing up my chest like I could do no
Harmon: For me it is a matter of a slow realisation through
wrong. This had a lot to do with the market I was trading
experience. Not a break through moment. Recognising
in the late 80s. As the market got more complex,
patterns and then dealing with them works in trading
trading equities and derivatives, losses, especially a
charts but also helps in the way that you move through life.
Harmon: Now this is the crux of the matter. Early on
streak, could really get me down. I would sometimes
ego. Now 26 years in I know that losses can be learning
Richard Chignell: If you could give aspiring traders one

piece of advice about emotionally handling the market
what would it be?
experiences and should be studied, even if only for a
Harmon: Wake up every day prepared for the market with
few minutes, but then let go. You cannot let them be
your analysis as well as with a good clean mental state.
an anchor around your neck and give you any doubt at
If you cannot come into the day ready to accept both
all about whether the next trade will be successful or
winners and losers and then move on, then do not go to
not. Yes they still suck, but next, move on. Wins still
work that day or do not trade.
feel that maybe it was time to stop and move away

from it for a while. Wins would still help to inflate an
feel great but with age I realise that they come from
preparation and sometimes luck. I am not some great
Wed like to thank Greg Harmon for sharing the way he
invincible being but take the time to be ready for what
tackles the market from an emotional/mental side of things
the market presents.
and for his willingness to allow us to post this as a free

resource in the hope that traders who have been in the market
Richard Chignell: Do you have any practices that you do

away from the trading screen to help you mentally and
emotionally handle trading?
for less time or are thinking of entering can perhaps pick up
Harmon: Really just recharging the batteries. I like to
Harmon you can find him:
some A-HAs.
If you are interested in finding more out about Greg
spend time with family. What my five and seven year

old children see in the world and how they learn and
On twitter: @harmongreg
experience life can show you the proper context for
At his firms website: www.Dragonflycap.com,
trading within your life and reset the emotional faculties.
www.presidiumcapital.com
71
People
Godfather of Technical Analysis
Ralph Acampora
Ralph Acampora launched the Market Technicians Association (MTA) about 40 years ago and was also the founder of the
International Federation of Technical Analysts (IFTA) whose members today include the Association of Technical Analysts
in Germany (VTAD). Ralph Acampora boasts nearly 50 years of market experience and has witnessed many a bull and bear
market during this time. And it is this very experience that is invaluable when it comes to correctly interpreting the recurring
cycles of the stock market. To this day, Ralph Acampora teaches at the prestigious New York Institute of Finance. He is also
Managing Director of Technical Analysis at Altaira, a Swiss wealth-management firm. Marko Graenitz has interviewed Ralph
Acampora over the telephone, talking to him about his career and the nature of his analyses as well as his assessment of the
market. This is a very special interview with one of the living legends of technical analysis. Enjoy!
72
PEOPLE
TRADERS: Mr Acampora, many technical analysts

have pursued different careers before as you yourself
have done. Can you describe to us what caused your
attention to be drawn to the markets?
during a job interview. He told me to do an MBA at a

university first and then try again. I was very disappointed
to hear that and it looked as though my lack of formal
qualifications kept me from achieving my aspirations.
Acampora: Yes, my original career path was quite

different, and I actually ended up in the markets just by
TRADERS: What happened then?
chance. I had been a student of history and theology and
Acampora: I refused to give up and went on to read all
would certainly have chosen a different profession if it
sorts of job adverts. Finally, I saw an ad where an analyst
hadnt been for a serious car crash I

was involved in at that time, which
was pretty much exactly 50 years
F1) Dow Jones and Dow Transportation index
ago today. Sometimes your worst

experiences in life turn out to be the
best in the end. And so it came to
pass that I learned a great deal about
Wall Street during my 3-month stay
in hospital. A certain Mr Downey had
introduced me to a good surgeon to
operate on me. Mr Downey regularly
visited me in hospital, each time
bringing along his financial-market
research, which I found intriguing
and went on to study meticulously.
It was so exciting that I decided to
apply for a job in finance.
TRADERS: Did you actually

manage to land a job in that field?
Acampora: Well, I had no experience
whatsoever except for what I had
read in Mr Downeys research. I
vividly remember talking to the head
According to the Dow Theory, the transport index must confirm the signals of the Dow Jones for a clear trend
to exist. For a while, it may also work without confirmation as it did, for example, in 2012: Here, the Dow Jones
(upper chart) formed an upward trend, which was, however, not confirmed by the transport index (lower chart)
for a long time. Instead, the entry price in the Dow Jones in this case was lower for long positions than it
would be if one were to wait for the actual confirmation. So traders and investors are sometimes faced with
a trade-off between the reliability of the signal and the price potential.
of the research unit of a fund company
Dow Theory
The Dow Theory was developed by the American economist
Charles Henry Dow and provides the theoretical background
for trend lines and trend channels. Dow defined a trend
as a market movement that clearly pointed to a certain
direction. Basically, there are three possible trends: uptrend,
downtrend, and sideways trend. Depending on the time
frame, several possibly opposite trends can be shown to
exist in any index or security. The long term trend is referred
to here as the primary trend, which may last for a year or
longer. Within the primary trend, secondary trends may
occur which are usually estimated to last for a period of up to
three months. Tertiary trends are short term and only last for
a week up to a maximum of one month.
People
The Three Psychological Phases in Every Major Bull Market
TRADERS: What was your job as a technical analyst?
Phase 1: Disbelief and Fear: The early phase of a bull market
Acampora: Primarily, technical analysis meant collecting,
is characterised by most market participants if they invest

in shares at all much preferring to put their money on
recording, and evaluating price-related data, which was

still rather laborious at that time. However, studying prices
safe quality stocks (blue chips).
intensively enabled me to develop a better feel for the market.
Phase 2: Belief and Trust: Rising share prices attract
TRADERS: How important, do you think, is technical

analysis now compared to fundamental analysis?
investors. Trust builds up causing minor stocks and previous

laggards to take off.
Acampora: I do both and call it fusion analysis. Strictly
Phase 3: Complacency and Greed: Easy profits on
fundamental, quantitative, and technical analysis.
speculative and risky stocks dominate, the fundamental

valuations rise significantly, and theres euphoria.
speaking, it is actually a combination of macroeconomic,
TRADERS: Can you describe that in more detail?

Acampora: I believe that any professional and meaningful
analysis needs to include all four components. I always
start out at the macro-level, which means that I look at the
was wanted with no prior knowledge required. And I
national economy as a whole. You do not have to carry
got the job, which was at a small fund company. My tasks
out each of these analyses yourself but can instead draw
included 50 per cent fundamental research and 50 per
on existing analyses conducted by experts. In any event,
cent technical analysis. Since I had no experience, they
the important thing is the interpretation of the relevant
first gave me a book to read which was Edwards and
research. The second step to take is fundamental analysis.
Magees classic Technical Analysis of Stock Trends. I
This is all about checking to see what the valuations are,
read the book, which was how I picked up the basics.
what the management of a company is doing and how

the individual products are positioned. The whole thing is
then put into context by quantitative
analysis: What impact do which
fundamental data have, historically
F2) Gold: Avoid Positions
speaking, and what are the most

likely scenarios? There are a lot of
statistics here that you can analyse.
Finally, there is technical analysis
which I always carry out last because
it is there that I want to see the results
of the first three steps confirmed if
the technical side does not fit into
the picture, I will stay away from the
investment.
TRADERS: Do you know of any

example where analysts clearly
contradicted each other?
Acampora: A particularly glaring
example of such a contradiction
Most recently, Ralph Acampora has been neutral on gold. Since the slump in April, gold and silver have ceased
to be long candidates for him since the technical-analysis picture has clearly deteriorated.
74
occurred when Enron saw its price

plummet when the New Economy
bubble
burst.
Virtually
every
People
fundamental analyst had a buy recommendation
9th January 2013 11 Reasons Why Ralph Acampora Is Bullish
for the stock, but it rapidly slid more and more to rock
In retrospect, early January was a very good time to be
bottom. From a technical perspective, the stock was a

clear sell recommendation. Only shortly before Enron
went bankrupt did some fundamental analysts change
sides much too late. And when Citigroup crashed during
the financial crisis, something similar happened.
TRADERS: What steps do you subdivide your

technical analysis into?
Acampora: You need to keep things simple. Price
is always the most important thing. Nothing has a
higher priority for me. My further analyses are based
on the Dow theory and the trend analysis of the major
markets. In the case of stocks, I analyse the ten major
sectors of the S&P next and then the subgroups right
down to important individual stocks. I will also look at
inter-market relationships and analyse how the markets
interlock and whether everything there is above board
or whether there are any distortions emerging. For
my trend analyses, I use trend indicators like Moving
Averages, the MACD (Moving Average Convergence
Divergence) and the RSI (Relative Strength Index)
usually on a weekly basis in order to get a clear picture.
I think that analyses that are more short term are more
confusing to most people and of no value. Depending
on market conditions, however, I will also look at daily
charts.
TRADERS: Do you also analyse volatility?

Acampora: Sure. The VIX volatility index is an excellent
market barometer. Many think that low volatility levels
are a sign of a possible slump, but I see that differently:
To me, low VIX levels are bullish since they can stay low
for a long time, signalling a good investment climate.
It is different with high volatility levels: If the VIX goes
up by leaps and bounds in a crash, the bottom often
is not far off. A good example of this was provided in
August 2011: When the VIX had risen above 40, people
desperately turned to me asking whether price losses
would ever come to an end. My answer was that the VIX
historically had only very rarely reached such levels
and that the bottom was highly likely to be approaching
fast. And that is exactly how things turned out to be.
Only in 2008 did volatility levels climb significantly
bullish on stocks. Ralph Acampora was one of the few

people to anticipate this at that time. On 9th January, he
posted 11 reasons on Twitter that made him feel very bullish:
1. The March 2009 low was and is a generational low
just like the Oct/Dec 1974 bottom. We will work our
way irregularly higher.
2. NYSE breadth is at all-time new highs. The majority of
of stocks are doing very well.
3. With close to 50 years experience I have never seen so
many people, so negative on the stock market, for so
long.
4. The market has doubled since its 3/09 low and there is
still trillions of dollars on the side lines. This is more fuel
for the bull.
5. The 10-year yield broke above 1.9 per cent recently
the bottom in yields is in and the air is slowly coming
out of the bond bubble.
6. Rotation is the life-line of every bull market. The long
overlooked financials are leading this is very bullish.
7. Most markets around the world are doing well despite
local problems. Negative news has been largely
discounted.
8. China has bottomed it will help power the global
recovery; and Japan is boosting its stimulus.
9. The European bellwether the DAX is about two per
cent away from an all-time new high. That has to be a
fantastic omen for Europe.
10. Like the late 1970s, the Street is contracting because
the equity market is out of favour with the public. Dont
follow the herd.
11. And lastly: Dont Fight the Fed. We all have a vested
interest in a strong stock market.
Many of these things continue to be valid. By now, Ralph
Acampora assumes that the bull market has moved into its
second phase after the safe blue chips had first risen
significantly, mid-and small-cap stocks have followed suit
most recently. So investors are becoming more tolerant of
risk. Corrections or even minor bear markets that might be
in the offing represent buying opportunities, he wrote on
9th January 2013. And he was right.
higher.
75
People
difficult years on the stock market,
F3) Daily Chart of US Financial Sector
people found it impossible to believe

that we had a new bull market. And
hardly anyone was fully invested
just like today. I think that the initial
phase that of fear and disbelief is
already a thing of the past since the
new all-time highs and that we have
moved on to Phase 2. In early May, I
was interviewed on the US television
station CNBC. I was asked by the
presenter what I would expect now
that my target of 15,000 points for the
Dow had been achieved. I said that the
Dow would now be headed towards
20,000 points, which caused the
presenter to look a little surprised. But
The 1-year chart shows the development of the ETF on the financial sector (symbol: XLF), which is in a clear
uptrend. Most recently, the situation was highly overbought in the wake of the ever steeper rise, which
increased the risk of pullbacks.
thats exactly what usually happens in

a bull market. However, Phase 2 is only
just starting because trading volume is
still low, only at about half the level of
previous peaks. This indicates that the
vast majority of market participants
TRADERS: You have been very bullish since early

2013. What is your current long term assessment?
continue to not be in on the action. And there is a similar
Acampora: We are in a major bull market. Psychologically,
Germany or the DAX, is the engine in Europe, and its doing
the situation is the same as after 1982: After so many
very well just as a Mercedes would (laughs).
situation in other countries of the world. For example,
TRADERS: Are there any other

signs to indicate that the first phase
of the bull market is already over?
F4) Monthly Chart of US Financial Sector
Acampora: Recently, safe stocks

with
high
dividend
yields
have
been shown to underperform, such

as utility stocks, for example. This
shows that investors are already
becoming
somewhat
less
risk-
averse, which is a sign of Phase 2
TRADERS: Is it also possible

for the bull market to get out of
control?
Acampora: In theory, this would
be possible. Since so many big
investors are not in on the action,
The monthly chart of the ETF on the financial sector (XLF) confirms the long term bullish assessment by Ralph
Acampora and puts the overbought situation of the daily chart in Figure 3 in perspective. The latter here
represents the last twelve candles which produced the successful breakout from a multi-year consolidation.
According to Acampora, larger pullbacks along the way are to be interpreted as buying opportunities.
76
fund managers, for fear of losing

their jobs, may well be swiftly
entering the market in a big way. That
in turn could trigger a buying panic,
but this is anything but healthy for
People
the market. I hope that we will not be
F5) Monthly Chart of US Technology Sector
experiencing anything like that.
TRADERS: Do you only analyse

long opportunities or would you
also enter into short positions?
Acampora: Sure, if that is what my
analyses require me to do. Primarily,
I would then short individual stocks.
TRADERS: How do you see other

markets, such as gold, silver, or oil,
for example?
Acampora: Gold and silver have
been struggling since the slump in
April. Im currently inclined to be
neutral, but would not recommend
any long positions. The same goes
for oil, which is in a sideways trend.
Here you just have to wait and see at
The chart shows the development of the ETF on the technology sector (symbol: XLK). While the sector has not
outperformed the market recently, it has consistently been on the rise for quite some time most recently
with new 10-year highs, which have moved a long-lasting base upwards.
this point in time (as of 28 May 2013).
TRADERS: How do you invest in

the markets of the world that you think are attractive?
While the sector has not outperformed the market recently,
Acampora: ETFs today are a great way of doing this. These
it has consistently been on the rise for some time most
products have really made it easy to invest globally.
recently, the sector has made new 10-year highs, also

leaving a long-standing base by moving upwards.
TRADERS: Do you also use ETFs

for sector analysis?
Acampora: Yes, and I have two fine
F6) Breakout at Veeco
examples of that. The first is the

financial sector or the corresponding
ETF with the symbol XLF (Figure 3).
The daily chart is clearly overbought.
But that does not change my long
term bullish assessment. If we look
at the monthly chart (Figure 4),
we can see that there was a clean
breakout from a huge base. There is
no evidence of any large tops on the
monthly chart, quite the opposite.
Every major pullback should be
viewed as a buying opportunity.
TRADERS: Thats an unequivocal

statement. Whats the second
example?
Acampora: The monthly chart of the
technology ETF (symbol: XLK) shown
in Figure 5 reveals a solid performance.
In late May, the closing price of the Veeco stock marked a new high on the daily chart (see top mark). This
was confirmed by the breakout from the large base, which had developed since early 2012. The share is an
example of a stock that until very recently was at the very top of Ralph Acamporas watch list. The upward
trend was confirmed with pullbacks representing buying opportunities.
77
People
TRADERS: So the big decisions are ultimately always

made on the basis of the long term charts, arent they?
Acampora: One part is science and one part is art. And
Acampora: Yes, they are. In the short term, there is
can always rely on price, which is a fact that will not
a lot of market noise and confusion. In view of that,
be changed in hindsight (unlike earnings estimates or
it is tremendously helpful to take a step back and
sometimes even corporate-earnings figures that have
look at the long term charts. And thats what I would
already been reported). The price just keeps pricing in
recommend to anyone who doesnt know where to go
information and expectations of the future, which makes
on the markets and who is looking for guidance. And
it the ideal construct to analyse the strength of the buyers
if you do that looking at a monthly chart of the stock
vis--vis the sellers.
the art part is to find the right interpretation. But you
market , you will know where things are most likely

to be headed.
TRADERS: Do you have an example of such an

interpretation?
TRADERS: But such simplistic approaches are rarely

discussed in the media.
Acampora: Lets look at the last few months or even
Acampora: The problem is that its always easier to
several fronts, but the markets still go up. If bad news
talk about problems and scare people since this causes
does not bring the market down, then that is good news.
the media to be more present amongst the people. It is
This is a very classical interpretation. There will be good
perfectly natural for threats to be perceived more widely.
times at some point in the future, and that is already being
This is one of the reasons for ignoring the media as much
anticipated now. Five or maybe eight years from now,
as possible and relying on your own analyses.
the US could be independent of oil and perhaps even be
years. Time and again, we get a wave of bad news on
promoted to being an exporter of natural gas. President
TRADERS: So technical analysis is something you can

count on, isnt it?
Obama has already laid the foundation for this. Such

things are so-called game changers that today nobody
talks about yet but that create
completely new opportunities.
F7) Has the Big Turnaround in Interest Rates Already Materialised?
TRADERS: How important is the

concept of relative strength?
Acampora: The markets are driven
primarily
by
the
institutions.
Especially for funds, it is important

to outperform. But if those funds are
behind on the benchmark index, they
are going to have a problem since
customers will be withdrawing their
funds. The upshot then is that, more
often than not, especially markets
that have gone up significantly will
again be bought widely by investors
who had missed the movement. This
may again fuel the relative strength
of this market for some time to come.
TRADERS: Do you also use stop

prices for your investments?
This shows the development of the yields on 10-year US Treasuries over the last five years. Ralph Acampora
believes that the most recent increase above the two per cent mark could have confirmed the turnaround in
interest rates. That would mean that the huge rally in the bond markets that has been going on since 1982 is
coming to an end and that yields will go up again in the long run.
Source: www.bigcharts.com
78
Acampora: Yes, from a certain level

on I need to exit, which is what I
have mental stops for. However, it
all depends on which investment is
involved and what time level time
People
I trade at. More often than not, for example, pullbacks
1965 had been the most difficult. The reason he cited was:
in an uptrend that we can currently witness in stocks
During that time, the markets were overbought all the time
represent additional buying opportunities where I can
without forming a real correction. And thats exactly what
further increase my position.
it seemed to look like in early 1995, which then made it

possible for me to come up with this bullish interpretation.
TRADERS: Whats the maximum amount you would

use from your investment capital to invest in a position?
Who knows, maybe its the same again this time.
Acampora: Again, it depends on the situation but ten

per cent would certainly be a very large position which I
TRADERS: When you look back on your successful

career, what are you particularly proud of?
might describe as an upper limit.
Acampora: In those days when my friend John Brooks and

I laid the foundation for MTA, technical analysis enjoyed
TRADERS: Can you remember any analysis that you

are upset about in retrospect?
as little recognition as voodoo. I knew that this would
Acampora: Yes, absolutely. Prior to the crash of 1987,
to see it. I am particularly proud that we have managed
there was an article in Barrons where several analysts
to establish the Chartered Market Technician (CMT) as an
were being surveyed. Some said that they expected a
alternative to the classical CFA certificate and also of the
crash. I wasnt quite as bearish as that and spoke of an
fact that the SEC officially recognised that qualification in
early correction. I now wish I had been more bearish at
2005. That was really a major breakthrough for technical
the time since that could well have been deduced from
analysis. Unfortunately, the IFTA refused to follow suit
the analyses. Correction was clearly the wrong word to
because they had fallen out with the MTA internally. But
describe what followed.
I am confident that this old dispute will be settled in the
change at some point, but did not think that I would live
future. After all, technical analysts need to hold together
TRADERS: Which of your analyses do you remember

that was particularly successful?
(laughs).
Acampora: In June 1995, the Dow was at 4500 points
The interview was conducted by Marko Graenitz
(Figure 8) and I published a 58-page

research report where I suggested
that a rise to 7000 points would be
F8) Dow Jones in June 1995
possible. Over the short term, this

was received with a great deal of
ridicule, but in February 1997 that
target was reached and prompted
my then employer to give me a red
Corvette, which I had always wanted
to have.
TRADERS: Not a bad reward!

Where did you get the idea that the
Dow might go up that much?
Acampora: The entire analysis was
based on a conversation I had with an
investor by the name of Ken Wood,
who was 85 years old at the time
and had practically seen every bull
and bear market of the 20th century.
I asked him what his most difficult
time had been and I thought he would
answer by mentioning the Great
Depression after 1929. But instead
he said that the years from 1963 to
In June 1995, the Dow was at 4500 points (see arrow), having almost doubled since the low in 1991. At
that time Ralph Acampora published a 58-page research report where he suggested that a rise to 7000
points might be in the offing. Hardly anyone thought at the time that this could possibly materialise since
prices already seemed to be high. But as early as February 1997 just 20 months later , the target was
reached.
79
SEMiNArS
important Dates for your Calendar

Date
Seminar
Firm
Location
Website
04.08.2002
Forex Seminar
Knowledge to Action
Knightsbridge
www.knowledgetoaction.co.uk
02.08.2013
Introduction to Physical Trading & Warehousing
London Metal Exchange
Shanghai
www.lme.com
02.08.2013
Stock Market Seminar
Knowledge to Action
Oxford
04.08.2013
Stock Market Seminar
Knowledge to Action
Knightsbridge
05.08.2013
Trading Market Trends and Chart Patterns
Phillip CFD
Singapore
www.phillipcfd.com
05.08.2013
Futures, Options & Derivatives
Energy Management Institute
Houston
www.energyinstitution.org
05.08.2013
Forex Seminar
Knowledge to Action
Canary Wharf
06.08.2013
Technical Analysis: The Trend is Your Friend
Fidelity Investments
Del Mar
www.fidelity.com
06.08.2013
Demystifying Bond Selection for Your Portfolio
San Francisco
www.fidelity.com
07.08.2013
Searching for Stock Ideas on Fidelity.com
Charlotte
www.fidelity.com
07.08.2013
Forex Seminar
Knowledge to Action
London
09.08.2013
Quarterly Market Update
Scottsdale
www.fidelity.com
12.08.2013
Technical Analysis: Gaining Confirmation

and Managing Risk
Towsen
www.fidelity.com
13.08.2013
Is a Professionally Managed Account Right for You?
Kansas City
www.fidelity.com
14.08.2013
Basic Options Strategy
Santa Monica
www.fidelity.com
14.08.2013
Understanding Exchange-Traded Funds (ETFs)
New Haven
www.fidelity.com
14.08.2013
Establishing and Maintaining Your Estate Plan
Jacksonville
www.fidelity.com
15.08.2013
Tax-Smart Investing
Knoxville
www.fidelity.com
19.08.2013
High Volatility Trading Using CFD
Phillip CFD
Singapore
www.phillipcfd.com
20.08.2013
Is a Professionally Managed Account Right for You?
Chandler
www.fidelity.com
20.08.2013
Maximizing Options Tools in Active Trader Pro
Paramus
www.fidelity.com
21.08.2013
Technical Analysis: The Trend is Your Friend
Denver
www.fidelity.com
21.08.2013
Energy Trading Fundamentals
New York
22.08.2013
Technical Analysis: Identifying Chart Patterns
Birmingham
www.fidelity.com
22.08.2013
Intro to Energy Trading for the Non-Trader
Houston
23.08.2013
Introduction to the LME
Shanghai
www.lme.com
24.08.2013
Introduction to Hedging with Futures and LMEswaps
Shanghai
www.lme.com
25.08.2013
Introduction to Hedging with Options
Shanghai
www.lme.com
26.08.2013
Automate and Capture trading Opportunities with CFD Phillip CFD
Singapore
www.phillipcfd.com
80
COLUMN
7 Habits of Highly
Successful Traders
Steve Burns has been an active and successful trader for

over 13 years. He is the author of New Trader, Rich Trader,
Show Me Your Options and How I Made Money Using
the Nicolas Darvas System. He has also been a contributor
to ZenTrader.ca and Business Insider. Steve blogs at www.
NewTraderU.com and twitters as @SJosephBurns. He lives in
Nashville, TN with his wife, five children, and granddaughter.
There are seven things that I believe are pretty common
The 7 Habits of Highly Successful Traders
in the successful traders I have known, read about, and
1.
Traders must have the perseverance to stick to trading
seen in action. Whether it is stock trader Nicolas Darvas in
until they break through to success. Many of the best
the sixties, commodity trader Ed Seykota in the twentieth
traders are just the ones that had the strength to go
century, or Jesse Livermore at the turn of the last century,
through the pain, learn, and keep at it until they learned

to be a success.
many of these principles hold true. The closer I get to

these principles the better I trade, the farther I stray, the
2.
Great traders cut losing trades short. The ability to

accept that you are wrong when a price goes to a place
worse I do. In trading, discipline pays.
that you were not expecting is the skill to push the ego
aside and admit you are wrong.
3.
F1) Development of Habits
Letting a winning trade run as far as it can go in your

time frame is crucial to having big enough winners to
pay for all your small losing trades.
4.
Avoiding the risk of ruin by risking only a small portion of

your capital on each trade. It is a skill to not get arrogant
and trade too big; if you risk it all enough times, you will
lose it all eventually.
5.
Being reactive to actual price action instead of predictive

of what price action will be is a winning principle I have
seen in many wealthy traders. Letting price action give
you signals is trading reality. Trading your beliefs about
what price should be is wishful thinking.
6.
Great traders are bullish in bull markets and bearish in

bear markets, until the end when the trend turns.
7.
Effective habits consist of internalised principles and patterns of behaviour.
Source: TRADERS graphic
Great traders care about making money more than

any other thing. Proving they are right, showing off, or
predicting the future is not as important as hearing
the register ring.
82
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This article is divided into two parts:

to the profitability of recurring trading patterns being

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destroyed. The following example explains why this is.

2. Suitable strategies for your trading plan

Suppose a classic breakout to a 20-day high had a positive

Part 1: Recognise Your Trading Edge

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The Scramble for Yield

the actual signal is triggered and other traders jump on

There is never-ending competition in financial markets

the bandwagon. Sooner or later, this race for yield will

between intelligent and financially strong players all of

destroy any profitable trading pattern emerging from the

whom share the single goal of making money. If we want

data series. Anyone who claims that the opposite is true

to give these people a face and we are exaggerating a bit

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