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Interview: Ralph Acampora – Godfather of Technical Analysis P. 72

Ralph Acampora – Godfather of Technical Analysis P. 72 New Series: The Trading Journal P. 64
New Series: The Trading Journal P. 64
New
Series:
The
Trading
Journal
P. 64
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Nr. 08, August 2013 | www.tradersonline-mag.com

Trading with Seasonalities Opportunities for Profit in August with the EUR/USD and Gold P. 20
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
The Volatility-Breakout
Strategy P. 56
Strategies to Give You an Edge in the Markets
Strategies to Give You
an Edge in the Markets
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EDiTOriAL

www.tradersonline-mag.com 08.2013 EDiTOriAL Lothar Albert Editor-in-chief and publisher The Grass is Always Greener on

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 weren’t for the neighbour’s 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 neighbour’s car that’s more expensive. Or his wife is more beautiful. you will have noticed by now what i‘m 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, you’ll find yourself just focussing on other people’s 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 i‘ve lost out again“:

• “Trader X was right to go long on EUR/USD, he’s already 50 pips ahead now.“

• “Trader Y’s 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 you’re having a bad day and keep thinking negatively. So you don’t 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 don’t 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 don’t 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 that’s what you will need to keep focussing on. On good days and bad. And by the way, that’s no different from the way it is with your home, car, and wife. «

Good Trading

days and bad. And by the way, that’s no different from the way it is with
days and bad. And by the way, that’s no different from the way it is with

TABLE OF CONTENTS

www.tradersonline-mag.com 08.2013

6
6

TABLE OF CONTENTS August 2013

COVERSTORY

6 Trading According to Plan 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.

INSIGHTS

14

New US-Dollar Indices Jose M. Piñeiro introduces several US dollar indices that have been created with the goal of finding the most accurate and representative valuation of the US dollar.

18

What Investors Need to Know about Japan Clem Chambers argues that inflation and the Bank of Japan point towards the country’s economic decline.

20

Trading Seasonalities – Part 2 We show a short idea for EUR/USD and a long idea for gold.

22

China International Online Trading Expo 2013 The CIOTEXPO is the largest forex and options trading expo in China and Asia. It will take place on 13th and 14th September.

72
72
18
18

24

News Find the latest notes and announcements from around the world of trading in our “News“ section.

TOOLS

28

New Products The Latest Trading Technology

30

Web Review

www.kitco.com

34

Software Review MetaTrader Trading Signals

36

Software Review VectorBull and ForexBull

40

Book Review “Kathleen Brooks on Forex“ by Kathleen Brooks

42

Appview

Trading Diary-App

 

PEOPLE

70

The Pro’s 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.

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 Trader’s 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.

TABLE OF CONTENTS

Publisher Lothar Albert Subscription Service www.traders-mag.com; www.tradersonline-mag.com; abo@traders-mag.com; Tel:

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

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. Piñeiro, 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

performance does not guarantee future results. © 2013 TRADERS´ media GmbH, Barbarastr. 31a, D-97074 Wuerzburg, Germany

COvErSTOry

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Strategies to Give you an Edge in the Markets

Trading According to Plan

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:

1. Recognising your trading edge

2. Suitable strategies for your trading plan

Part 1: Recognise Your Trading Edge

The Scramble for Yield

There is never-ending competition in financial markets between intelligent and financially strong players all of whom share the single goal of making money. If we want to give these people a face – and we are exaggerating a bit here – then it is the most talented mathematicians from Princeton who, together with the smartest physicists from Stanford and top-tier Harvard graduates, gathered in the trading department of an investment bank or hedge fund, devoting all their creative willpower to solving the financial-market puzzle. This competition is bound to lead

to the profitability of recurring trading patterns being destroyed. The following example explains why this is. Suppose a classic breakout to a 20-day high had a positive expected value. In that case, financially strong market participants would position themselves right before the breakout signal and sell their shares again as soon as the actual signal is triggered and other traders jump on the bandwagon. Sooner or later, this race for yield will destroy any profitable trading pattern emerging from the data series. Anyone who claims that the opposite is true should be able to come up with appropriate trading results to prove their point, otherwise such a claim will, soon enough be debunked as a simple lack of understanding.

Random-Walk Markets

The consequences of this competition are obvious. If we tried to trade one of the major markets such as EUR/USD

COvErSTOry

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F1) Lonely Warrior Signal

F1) Lonely Warrior Signal It’s not often that candles are formed completely outside the Bollinger bands.

It’s 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

on the basis of chart patterns without taking into account any additional information, we might as well be competing against Usain Bolt in the 100-metre dash. Our chances of success are the same in either case. Throughout the world, the most powerful financial-market players are busy studying the EUR/USD. There is no such thing as a

F2) Expansion Down Gap

F2) Expansion Down Gap If right at the start of trading there is selling pressure in

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.

Source: www.traderfox.de

personal edge here. Each profitable 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 Fama’s 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.

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 statisticians with their sophisticated software systems. The first move is headed towards equity markets, which resemble a zoom-in on details. You’ll be leaving the level of anonymity and will raise the curtain on a play that includes a wide variety of characters who breathe life 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 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

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

Analysts are good at evaluating long-standing business models. However, their judgment is regularly flawed when it comes to capturing disruptive changes. Whenever the financial markets are hit by new information that describes a drastic change – be it, in the simplest of

cases, significant changes in sales and earnings forecasts

– market equilibrium will be upset for a short period of

time. The chains that had made it a slave of the market will be cast off the stock. The new equilibrium will not be found immediately. There will be rapid price movements and a perceptible sense of general uncertainty. It may take several weeks for the stock to be revaluated and the laws of capital-market theory to be applicable again. Such sudden changes in the calculation bases are an opportunity for attentive traders who want to gain an advantage. Let’s stay with the stock markets. Even stocks with market valuations in the billions are not yet subject to a hundred per cent market efficiency where each player and each individual decision vanishes in the statistical background noise made by thousands of decision-making processes. In individual stocks, the fundamental data- based decision of a fund or large investor to stock up on positions may lead to noticeable price changes. A stock’s relevant information base is also much wider than, for example, in the case of an index. The euphoric coverage of

a revolutionary technology may lure thousands of traders into the stocks of a particular sector. No computer is capable of recognising the complexity inherent in the fact that it is sometimes

many small traders who fall victim to a fallacy. Astute traders are quite capable of doing just that – and that’s exactly why they have an edge over statistical traders. By reading stock- market 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.

to comprehend why. We know traders who are very successful but who find it infinitely difficult to explain their strategy. It has taken the writer of this article a long time to understand exactly what his edge is. For most of the trading day you sit in front of the ticker and spend your time watching prices. The trigger for a trade is then usually a well-known behavioural pattern that you can eventually narrow down and describe. Traders arrive at experiential data by observing recurrent patterns and learning what happens subsequently. If this pattern then occurs again, the experiential data can be accessed and implemented. A pattern may be much more than just a technical chart formation. It may include a huge amount of information such as corporate development, developing news, overall market situation, currency movements, and so on. And this results in what accounts for successful trading: Actually, as a trader you will just wait for patterns that you know inside and out to be working well. In the simplest of cases, such a pattern is, for example, a new 52-week high, a simple trend-following signal. It does not work throughout the entire year, but does an excellent job on an estimated 20 per cent of all trading days. For practical trading, that means analysing whether follow- up purchases are increasingly made after new highs or whether the breakout movement peters out. If the bottom line is that there is market sentiment that rewards breakouts to new highs with further price gains, you will buy this pattern as a trader. If not, you just won’t.

F3) Momentum High

F3) Momentum High A momentum high break is the break of a distinctive point in the

A momentum high break is the break of a distinctive point in the chart, which is the focus of many traders.

Source: www.traderfox.de

What Makes the Best Traders so Successful?

It’s one

the markets,

thing to

it’s

make money in another thing

COvErSTOry

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How Profitable Signals Keep Destroying Themselves

The profitability of patterns in the stock markets is subject to an evolutionary process that follows the rules of the efficient markets hypothesis. It starts with a pattern achieving an excess return in a conspicuous manner. For example, breakouts to new highs are accompanied by strong follow-up profits. This excess return will be observed by more and more market participants who then begin to trade this pattern. Initially, this may even enhance profitability, but eventually the trend will be reversed. There are two adjustment processes here. First, too many traders who want to achieve short term gains, have opened positions upon the emergence of the pattern. The excess return starts to shrink and the gains that have been made on the basis of this pattern will be realised even earlier. Secondly, some market participants will very soon identify the trigger for the pattern marking the beginning of the excess-return phase. Market participants will then naturally anticipate this signal in advance, that is systematically accumulate a stock one per cent before the breakout to a 52-week high only to sell the shares again immediately. This evolutionary behaviour pattern of chart signals and more complex trading patterns explains, on the one hand, the nature of efficient markets. On the other hand, it serves to open a door: Those who are the first to understand which trading patterns are currently working well, can use this knowledge edge for a short period of

time to systematically trade patterns with a temporary excess return before other market participants anticipate and destroy such.

Insights for the Trading Plan

The profitability of trading patterns is comparable to an evolutionary process. You need to have the opportunity to conduct a statistical evaluation that can first clearly identify patterns and, secondly, immediately alert you as soon as a positive expected value is developing. The trading patterns that are evaluated need to represent distinctive situations from which significant changes have emerged in the past.

Part 2: Suitable Strategies for Your Trading Plan

Lonely Warrior (Short Version)

This trading signal has a history that is easy to remember. A warrior who has strayed too far from his own lines, at some point finds himself alone and abandoned in enemy territory and sees his chances of surviving the enemy attack on his own dwindle rapidly. He has no choice but to let himself fall back until his own troops have caught up with him again. Applied to the stock markets, the enemy territory is defined as the price territory outside the Bollinger bands. The Bollinger bands do an excellent job here to 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 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 day’s 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, that usually indicates a systematic accumulation, which could possibly have fundamental reasons.

F4) Expansion 52-Week High

F4) Expansion 52-Week High An expansion 52-week high is no ordinary 52-week high. It is a

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.

Source: www.traderfox.de

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 Bollinger bands. Alternatively, a candle was formed with a trading range of more than three per cent with 90 per cent of the prices being outside the Bollinger bands.

2. The signal trigger is yesterday’s daily low. Once the price falls below the low, a short position will be opened.

3. The trade has a stop with a small risk tolerance of two to four per cent.

1. On the last five trading days, the stock’s share price lost more than three ATRs.

2. Today, a supply overhang weighs on the stock right at the opening. The stock opens with a loss of more than 1.5 per cent.

3. If there isn’t any extremely bad news (for example hefty profit warning), a long position will be entered immediately after the opening.

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

Expansion Down Gap (Long Version)

Emotions are rarely a good counsel when making trading

decisions. In other words, if a wild herd of panicky market players give away their shares, that will be the right time

to enter. Panic is an emotion that needs to mature on

the stock market. It is like a good meal that only reaches

its full flavour after a long period of simmering. At the

beginning of a price panic there are usually moderate losses. These will then be more severe, and at some point there will be a double-digit loss on the books within very few days, which makes shareholders incredibly nervous and causes them to make irrational decisions. In terms

of our signal, the irrational decision is the unlimited sale

right at the start of trading.

Translated into technical analysis, this results in the criterion that the share price must have fallen sharply within a short

period of time. More precisely, the prerequisite for the expansion down gap signal is that the price loss of

the last five trading days is greater than three ATRs. If this downward- movement 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.

Momentum High Break (Long Version)

There are certain points in a chart that almost every trader keeps an eye on. These certainly include the local highs or local lows that are V-shaped. Many traders place their stops at such prominent points or buy pro-cyclically into a position – quite in the spirit of the classical literature on such charts. Any experienced trader will often have had the experience of prices just once – for a tiny fraction of time – taking out such a point as described above only to then move in the opposite direction. This kind of price behaviour is no accident. It is the outcome of a market process that lets as many market participants as possible go the way of the worst pain. “Place stop-loss orders!” That’s what everybody keeps preaching all day long – in stock-market magazines,

F5) Pivotal News Point at Tesla Motors

F5) Pivotal News Point at Tesla Motors For quite a while, the electric cars made by

For quite a while, the electric cars made by Tesla Motors were taken seriously by German car manufacturers. But independent test reports confirmed Tesla’s 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.

Source: www.traderfox.de

COvErSTOry

www.tradersonline-mag.com 08.2013

in broker webinars, and in trading literature. Of course, minimising risk is a core component of successful trading. In practical reality, wrongly placed stop-loss orders are the main reason why many traders are unsuccessful. Those who set their stop prices in such a way that they are triggered by the everyday, random price noise, might as well go to the casino. Whoever places their stop-loss orders at distinctive points in the chart which virtually all traders are watching, is playing the part of a herring just waiting to be eaten by a shark on the prowl. After all, it is as plain as day that hedge funds or institutional

traders will start testing a distinctive point in the chart if

it can be assumed that that will be followed right away by

automated and unlimited orders. The “momentum high” chart pattern is defined as

a local high that stands out, V-shaped, from the price

performance. To ensure the V-shape, it is assumed that

in the five days prior to the momentum high, there was

an increase of at least 2.5 ATRs and in the five days after

the momentum, prices must have fallen by at least two ATRs. If such a momentum high is broken, there is the

signal “high momentum break” there. It is not a signal that should trigger an automatic trading reflex in a trader. Rather, it is a stock screening which provides interesting charts and prompts you to get to the bottom of the cause of the price movement. If the price increase leading to the momentum high break was triggered by good corporate news, the signal should rather be traded long. If, however, the price increase is purely driven by recommendations, industry strength or traders, a counter-cyclical positioning is a good choice. Real-time hit rates also are a good guide in determining whether the market currently favours cyclical breaks.

Exact Rules Governing the Momentum High Break

1. A momentum high was formed in the last eight weeks. There will be such a “high” if in the five days prior to the “high” an increase of at least 2.5 ATRs occurred and in the five days after it there has been a price slump of at least two ATRs.

2. Today this momentum high is broken.

F6) real-Time Hit rates

F6) real-Time Hit rates Real-time hit rates are a tool that informs traders about which signals

Real-time hit rates are a tool that informs traders about which signals currently work well on the market.

Source: www.traderfox.de

Expansion 52-Week High

A new 52-week high is the

standard signal of every trend- following 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 52- week 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 forming that big towering wave. The “expansion 52-week high” is no ordinary 52-week high but

one that is accompanied by strong price momentum. We are looking for situations in the chart that show a strong rally momentum in the immediate run-up to a

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 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 case, counter-cyclical positioning might be promising.

If corporate news was published, downright forcing a

revaluation potential, a long position will be the logical conclusion.

Exact Rules Governing the Expansion 52-Week High

1. Today, a new 52-week high is reached.

2. The price increase for one day is greater than 1.4 ATRs. Or: The price increase since two days ago is greater than 2.4 ATRs. Or: The price increase since three days ago is greater than three ATRs.

Pivotal News Point

Contrary to all the nonsensical claims usually made by market players worldwide who have just been taught

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 the trend of corporate profits, and from a long term perspective market values originate on a par with increased profitability. It is no coincidence that many strong upward trends are initiated after the publication of company news. Whenever breaking news is thrown into the market system, this sets into motion a chain of decision-making processes to be engaged in by market players. Will the new realities match our own expectations? If not, trades will be made. An increase in the earnings forecasts, for example, may lead to an investment-fund analyst presenting his new target-price prediction at a meeting

and the decision being made to build a significant position

in the double-digit millions.

Whenever the new realities emerging after pivotal news pulverise long-held opinions and ideas, the capital-market players are deprived of their calculation bases. People and, more importantly, management structures in companies are such that opinions that have long been voiced cannot be revised overnight. When

COvErSTOry

been voiced cannot be revised overnight. When COvErSTOry Simon S Betschinger Mr Simon Betschinger holds a

Simon S Betschinger

Mr Simon Betschinger holds a master’s degree in

economics e and has been trading since 1998. He is a

partner p and founder of TraderFox GmbH (www.trader-

fox.de), f a real-time stock-market software program for

the t systematic trading by chart patterns. In addition,

he h trades with a real-money portfolio on the trading

portal p Master Traders (www.mastertraders.de).

simon.betschinger@mastertraders.de

Apple’s iPhone was launched and the first gigantic sales successes were achieved, most analysts probably suspected that Nokia’s days were numbered for the time being. But virtually no analyst dared at the time to utter this insight immediately. It takes time for new realities to be accepted. This is shown in the stock markets in periods of strong outperformance or underperformance of shares following pivotal news.

The Exact Rules Governing the Pivotal News Point

1. Today, a news item is published that at a stroke throws out the existing calculation bases regarding the future profits of a company and outlines a new development path that in this shape has not previously been considered possible by most market participants. The first price after publication of the news is the pivotal news point.

2. Buying starts immediately after the publication of the pivotal news.

Your Next Few Steps

You should take the time to think at length about whether, objectively speaking, you have an edge in the markets, and if so, what exactly it is. In the long term, this criterion is the basic prerequisite for success in the stock market. Thereafter, make a trading plan in which you explain your strategy in detail and respond to all contingencies in the form of scenarios — how to proceed when you are winning and how do you act in the event of a loss, what to do with surprising news, and what if there is a sudden market crash? Anything can happen in the markets, and you need to have a ready answer to everything. Otherwise, there is a danger of you having to respond at short notice, deciding emotionally, and making exactly the wrong decision in the heat of the moment (which other traders who are better prepared will benefit from). Professional market participants have worked intensively ahead of time to be prepared for all eventualities and when it matters know just what to do – and so should you. «

iNSiGHTS

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Which Index Should Traders Use?
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 to using a base currency for all transactions. People instinctively use their domestic currency unless they are frequent travellers or engaged in international commerce. The same denominator is being used, automatically making life much easier. Apples never have to be compared to oranges. However, currencies also change in value. That value is determined in the foreign exchange (forex) market, which allows, for instance, a comparison of the euro to the dollar. The Euro-Dollar could rise in value but how would one answer the following question: Is the Euro strengthening or is the US dollar weakening? The two main variables for formulating a dollar index are the selection of currencies and the weights assigned to each. The standard US Dollar Index, also known by its ticker symbol USDX, has been in use since March 1973 when created by US commodity exchange operator IntercontinentalExchange (ICE). The USDX measures

the value of the US dollar against a basket of six foreign currencies (euro, Japanese yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc). Unlike two of the more recently-created dollar indices, the USDX is heavily skewed towards the value of the euro. The weight given to each currency was derived from their share of US foreign trade back in the 1970s. This index has only been updated once, in 1999, when the euro was adopted. Several European currencies were replaced by the single currency, which now has a 57.6 per cent weight on the index. The IC E takes pride in the stability of the index despite having maintained the same trade-weights over the years. The USDX matches relatively close to the Federal Reserve’s own Trade Weighted U.S. Dollar Index, leading the ICE to argue that trade flows are not a major driver of the Dollar Index. The USDX allowed traders to use the index for trading purposes whereas the Fed’s index was an ‘after-the-fact’ index based on annually changing trade weights.

Trade-Weighted vs. Equal-Weighted

The creation of new indices in recent years has mostly resulted out of a need to give greater weight to other currencies. Although the euro and the dollar account

for most of the trading volumes in the currency market,

a heavily euro-weighted index may leave out some very

valuable information. Such an index does not reveal what currency is the driving force behind the index. For example,

a rising US Dollar Index does not reveal whether it is driven

by a rising US dollar, a falling euro, or a combination of both. Giving more weight to other currencies in the ‘basket’ could help investors figure out whether the US dollar is really driving the change in the US dollar index. The feeling that the USDX was outdated has led the CME and Dow Jones to unveil their new dollar index in June of 2010. They created the Dow Jones CME FX$INDEX as the basis of a new futures contract. Compared to the USDX, this index replaced the Swedish krona with the Australian dollar and assigned different weights to reflect the most frequently traded CME currency futures and the “current economic realities as indicated by the Fed’s data on world trade.” Nonetheless, the Dow Jones CME FX$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 Cürex Group decided to launch their own index, claiming there was a need for

a new USD index that incorporates China’s renminbi

currency as it becomes more prominent in global trade. Their FTSE Curex USD G8 Index was aimed at providing

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a more even measure of the US dollar relative to the rest of the world by including “over 90 per cent of USA’s international relationships and a more representative benchmark.” This equal-weighted index includes eight currencies, the Australian dollar, Canadian dollar, Swiss franc, Chinese renminbi, the euro, the Sterling pound, the Japanese yen, and the New Zealand dollar. Finally, an index was created that reflects an emerging currency. However, there is the problem of China’s currency not being a free-floating currency.

Wall Street Journal Dollar Index: A Volume-Weighted Index

Just one month later, the Wall Street Journal announced its own Dollar Index “to provide a more precise measure

F1) Comparison of US Dollar Indices (First Half of 2013)

F1) Comparison of US Dollar Indices (First Half of 2013) Sources: research.stlouisfed.org, cnbc.com, wsj.com,

Sources: research.stlouisfed.org, cnbc.com, wsj.com, finance.google.com

iNSiGHTS

www.tradersonline-mag.com 08.2013

of the value of the U.S. dollar, an essential benchmark for traders and corporate treasurers who need to discern the true measure of investing abroad or domestically.” They highlighted that their methodology sets it apart from the rest by basing the weights of seven currencies on forex trading volumes as reported by the Bank for International Settlements. The use of trading volumes aims at measuring the right relationship between currencies. Whether to use forex trading volume or international trade data is debatable. By using forex trading volume, the euro weighs about 41 per cent of the WSJ dollar index compared to 57 per cent for the DXY. However, this index may also be too skewed towards the euro in a global economy where emerging markets have a rising stake.

Exchange-Traded Funds Search for a Perfect Dollar Index

Many currency ETFs (exchange-traded funds) were created in late 2007 ahead of the financial crisis to capitalise on the growing role of emerging markets. With the growth of the ETF market, many investment banks tried to develop their own products that tracked the performance of the US dollar versus other currencies. Most of the time, however, these can be divided into developed and emerging market funds. While there is an abundance of different combinations and tradable products, a major reference or a

commonly-used benchmark to measure the dollar has not emerged.

Example of Dollar Index Shortcomings

By looking at recent trends in the US dollar, one can make a comparison between commonly-used US dollar indices and the performance of the US dollar to other currencies. From April to mid-June, three major US dollar trends can be detected. In the first trend, from April 1st to May 1st, the US dollar was bearish versus most currencies, with a few exceptions. This was followed by a period of remarkable US dollar strength from May 1st to May 22nd across all currencies, developed and emerging alike. Standard US dollar indices did a fairly good job of reflecting those trends. The third period presents a discrepancy. That period was characterised by strong dollar strength versus emerging currencies and weakness versus the majors. However, the US dollar indices very closely match the dollar weakness seen in the majors and disregard the emerging country currencies. This discrepancy is visible in the chart. The red-shaded lines represent dollar weakness versus the majors and the green-shaded lines represent dollar strength versus emerging currencies. The black lines, which represent the dollar indices, should be somewhere closer to the middle. However, they are closely tied to the red lines.

F2) Divergence of US Dollar Strength against Majors and Emerging Currencies

of US Dollar Strength against Majors and Emerging Currencies The third period presents a discrepancy. It

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

the

dollar indices is that they lack any indications of dollar strength, although the dollar was remarkably strong versus emerging currencies.

The

shortcoming

of

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 have been created, especially in recent years with an increasingly globalised economy. Although countless of variations have been created, a popular broad

dollar benchmark has not emerged. Some tools are not commonly or publicly made available by data vendors. Perhaps, the ‘right’ US index has not been developed yet. 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 Reserve’s 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 emerging currencies, which play a growing role in the global economy. According to the International Monetary Fund’s (IMF) World Economic Outlook, emerging economies’ share in global output has increased from less than 20 per cent in the early 1990s to more than 30 per cent measured at market exchange rates. Accounting for differences in the cost of living, that share is even greater and is expected to surpass 50 per cent in 2013. Most US dollar indices

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Jose J M Piñeiro Jose J M Piñeiro started in the forex industry in i
Jose J M Piñeiro
Jose J M Piñeiro started in the forex industry
in i 2002 as an Operations Specialist and then
Compliance C Officer for FXCM in New York when
the t online retail forex market was still getting off
the t ground and expanding rapidly. He has spent
the t last seven years working for Web Financial
Group G (WFG), based in Madrid. He is now forex
analyst a for WFG’s forex website, fxmania.com.

disregard an important part of the global economy in measuring the value of the USD. As can be seen on Figure 1, all indices follow the same general direction. However, only the Fed’s index showed

the USD dollar reaching new annual highs in June. The Fed’s index cannot be used for trading purposes because

it is an after-the-fact index that is re-balanced on an annual

basis using trade data. However, an index that includes

a better representation of emerging country currencies would perform more closely with the Fed’s index.«

T1) Overview: Dollar indices

Dollar Index

Composition

When

Creators

Tradable

Volume

Trade-weighted US

Trade-weighted: many currencies based on international trade with weights aligned according to US trade patterns and adjusted annually. Weightings at Fed website:

1998 (a new set of FX indexes were introduced)

 

No, after-the- fact index is unsuitable for trading purposes.

 

Dollar index

Federal Reserve

Not available

www.federalreserve.gov/releases/H10/Weights

 

Trade-weighted: 6 currencies based on international trade data in

Yes, as a futures contract on the ICE. Also available in ETFs, options and mutual funds.

1 contract = $1000 x Index value. Approx. daily futures volume:

30,000

US Dollar Index (DXY)

1973

Intercontinental

Exchange (ICE)

 

1973. EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2%, CHF 3.6%

 

Equal-weighted: 4 currencies; EUR: 25%, GBP: 25%, JPY: 25%, AUD: 25%

 

Dow Jones and FXCM

Yes with online

DowJonesFXCMDollar

2011

forex broker FXCM.

Not available

 

Volume-weighted based on trading volume measured by Bank for International Settlements (BIS); 7 currencies: AUD, CAD, CHF, EUR, GBP, JPY, SEK

 

Wall Street

No but creators describe it as barometer for futures traders betting on the direction of the dollar.

 

WSJ Dollar Index (BUXX)

July 2012

Journal

Not available

 

Approx. 1

Dow Jones CME Spot FX$INDEX

 

The CME and Dow Jones

Yes, as a futures contract on the CME.

million in

 

June 2010

total FX

 

futures

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

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www.tradersonline-mag.com 08.2013

What investors Need to Know about Japan

Most Likely Abe’s 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 country’s economic decline.

Clem Chambers Clem Chambers is CEO of ADVFN (www.advfn.com) and author of several books such
Clem Chambers
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 Beginner‘s Guide
t to Value Investing“.

» Last month saw the likely death of Abenomics. It is not 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

politics is in hopeless gridlock because no politician is able to break the gentle but profound decline. The situation is very real. Within two generations the Japanese population will collapse from 120 million to 60 million, underpinned and accelerated by the deflationary policies of the Bank of Japan. Japan would like to think of itself as a democracy, but it isn’t. There are plenty of false democracies, such as Iran where the dictator Khamenei rules the country. In Japan the dictator is not a religious zealot but a financial one, the BOJ.

The Real Power Behind the Japanese Economy

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month as it crushed the Abenomic economic rebellion by inaction and signalling. The Yen rallied and the Nikkei crashed.

The Truth Behind the Figures

The crash of the Nikkei is probably the death knell for

Japan as a nation. Japanese demographics have already rolled over into decline. The population is now falling and humans do not breed well in captivity. The only way to halt this collapse, or even slow it, is through economic growth. If Japan wants a 90 million population rather than

60 million, a figure less than one per cent of the world’s

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.

against the wishes of the Diet, Japan’s parliament. The BOJ policy is long term and based on

The BOJ wants deflation as it sees this as the only 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 is based around the argument that the population is

doomed. 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 young carry the burden. Inflation transfers resources from the old to the young, deflation transfers resources from the young to the old. Japan must have deflation.

done so for years. Japanese bureaucratic institutions have a tradition of being overwhelmingly powerful. 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 nation’s sovereign debt will be repaid by death

population is well ordered and drilled. They are prepared

duties in due course, but Japan’s problems stem from

to

walk without question at the economic machine guns

too large a population. Japan is a resource strapped nation better suited to 60 million people. The government

because they are told to do so. The young are about to be economically slaughtered on the altar of the BOJ’s 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 achieves these goals. This is in diametric opposition to

of

Abenomics. The odds are low. You will know if this is happening, not because you

the elected government. The economic strategy of democracies is always the

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 the economically passive. Growth and inflation solve all debt problems in the end. Whilst the BOJ’s strategy is defensive, Abe’s

vanquish the BOJ is to take away its independence and purge the institution. The elected representatives of Japan simply do not have the will or strength to do this. Most likely Abe’s 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. «

iNSiGHTS

www.tradersonline-mag.com 08.2013

iNSiGHTS www.tradersonline-mag.com 08.2013 Trading Seasonalities Part 1: Short Idea for EUR/USD and Long Idea for Gold
iNSiGHTS www.tradersonline-mag.com 08.2013 Trading Seasonalities Part 1: Short Idea for EUR/USD and Long Idea for Gold
iNSiGHTS www.tradersonline-mag.com 08.2013 Trading Seasonalities Part 1: Short Idea for EUR/USD and Long Idea for Gold
iNSiGHTS www.tradersonline-mag.com 08.2013 Trading Seasonalities Part 1: Short Idea for EUR/USD and Long Idea for Gold
iNSiGHTS www.tradersonline-mag.com 08.2013 Trading Seasonalities Part 1: Short Idea for EUR/USD and Long Idea for Gold

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.

F1) Trading Idea EUR/USD December Contract Short

F1) Trading Idea EUR/USD December Contract Short From 8th August, the EUR/USD will again be pointing

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

» Trading Idea EUR/USD Future

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 Chicago Mercantile Exchange (CME). In the chart of the December contract (Figure 1), an additional shoulder- head-shoulder (SHS) pattern has

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F2) Trading idea December Contract Gold Long

F2) Trading idea December Contract Gold Long The December 2013 contract on a troy ounce of

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 profit was 67 points with 45 points being the level of risk.

Source: www.trackntrade.com

15th August with a holding period until 29th November, you were able to make money every year in the last ten years. Figure 2 shows the holding period of the December contract to be traded. Since 2001, commercial market participants had not been as bullish as they were most recently. Back then, it was possible to see for the last time that the red bar representing this group of investors was in positive territory above the zero line for the first time. After opening the long position, there was an average profit of 67 points, equalling 6700 dollars, while the average loss was 45 points ($4500). In the years 2011 and 2008, the maximum loss amounted to 11,000 and 20,560 dollars respectively. This was followed by a countermovement that just about led to a positive result.

formed. We have marked the 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 future’s movement of the last three and five years respectively. The average

profit of this bearish position was 196 ticks ($2460 per contract). The highest profit ever achievable was made in 2008. Back then, it was pos- sible for a short position to be opened at 153.21 that was closed more than ten points lower at 143 four weeks later. This difference in points translates into $1250. The stop should be placed 157 ticks ($1965) above the purchase price and swiftly adjusted if the euro falls quickly. From early July, a short position will also be supported by the Commitment of Traders (CoT) data (subchart below the price in Figure 1). For the first time since February 2013, commercial market participants can be found again on the short side. The red bars below the zero line indicate that this group of investors sees the euro falling against the dollar, causing them to position themselves accordingly. An initial margin of $2475 is required, an amount that, with a longer holding period, decreases to the maintenance margin of $2250 per contract.

Gold Trade Idea: Recent History

A future on a troy ounce of gold certainly is in a class of

its own. In the case of this trading candidate, one point of movement is tantamount to a gain or loss of 100 dollars. Here, the initial margin is 8800 dollars, which will be 800 dollars less if the position is kept open for a longer period 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

Conclusion

Traders paying attention to seasonalities should take a very close look at these two trading ideas prior to the entry date in question. Ultimately, technical analysis will then provide the crucial signal for the creation of the position in question. «

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).

of the TRADERS´ website – one video analysis each of EUR/USD and gold (www.tradersonline-mag.com/index.php/forum).

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www.tradersonline-mag.com 08.2013

13th and 14th September at the Shenzen Grand Theatre in China
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 traders, brokers and others who are interested in forex and options trading and discuss the latest trends in online trading. CIOTEXPO is held twice a year. Exhibitors can find new business partners in China and enlarge their customer database quickly. Various possibilities during the expo can help to promote the company brand and help it to benefit from the effective networking, which reaches investors, traders, advisers, financial solution providers and trading brokers. Of course exhibitors get an insight of the cultural differences in Chinese trading habits. The exhibitors and sponsors this year include Alpari, Ikon Group, IronFX, Instaforex, MIG Bank, Dukascopy Bank, Interactive Brokers, Axitrader, Commexfx, Tradency, PFSoft, MarketsPulse, Fxgrow and many more. Along with others TRADERS´ magazine is a media partner of CIOTEXPO. The expo expects to see more than 40 brokers and 5000 attendees. For 2013 the main issues are technology innovation, trading education, trading signals, money management, binary options, social trading, the booming online trading market in China and forex regulations. At the expo renowned analysts,

experts, CEOs, media representatives both from home and abroad will be sharing their ideas and experiences with visitors. CIOTEXPO is organised by the Eastpearl Group that was established in 2010. The event management company promotes financial services and economic development for traders, investors, brokers and other professionals. It is now established as one of the most dynamic and innovative event solutions provider in the investment tradeshow arena. The Eastpearl Group expedites the growth of the Chinese financial sector on the international market and has been awarded several Best Exhibition awards by the local exhibition association. Apart from the CIOTEXPO, Eastpearl Group hosts meetings, conferences and workshops in partnership with local governments and financial associations and helps overseas enterprises to show their products to Chinese investors and vice versa. Visitors and sponsors can get more information on the official website www.ciotexpo.com or contact the organiser by e-mail: darcylin@ciotexpo.com or by phone:

+86-755-36949770. Apart from that everyone can now register on the website and get free entrance. «

iNSiGHTS – NEWS

www.tradersonline-mag.com 06.2013

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 their first major project for MetaStock – returning the ability to store data on the customer’s computer. This release will be available in mid-August for all MetaStock customers. Innovative Market Analysis’ acquisition also enables the software to be more flexible to customer needs. “When we were part of Thomson Reuters, we had to focus on corporate partners needs first, and then retail customers,” said Mr. Brown. “This acquisition allows us to explore what our customers want and add it to MetaStock. There are numerous possibilities under consideration to enhance the product right now.” Innovative Market Analysis will continue to have a working relationship with Thomson Reuters. Thomson Reuters

a working relationship with Thomson Reuters. Thomson Reuters Scoot Brown DataLink and XENITH data will continue

Scoot Brown

DataLink and XENITH data will continue to power MetaStock and MetaStock Pro. On the institutional side, Thomson Reuters clients will still use MetaStock Pro functionality in Thomson Reuters’ flagship desktopThomson Reuters Eikon. Scott Brown, former MetaStock President, created Innovative Market Analysis in order to obtain the MetaStock software line and move it into a private business setting. “I created Innovative Market Analysis because MetaStock has great potential and I feel breaking away fromThomson Reuters allows us to turn potential into reality,” said Mr. Brown, owner of Innovative Market Analysis.

Source: www.metastock.com

rtS realtIMe SySteMS expands in Greater chIna

RTS Realtime Systems Group announced a number of actions the firm has taken to further build on its growth in Hong Kong and Mainland China. The steps include the launch of a Chinese-language website and recent establishment of a Shanghai office and expansion of its staff there. In Hong Kong, RTS has expanded into new office space and initiated plans to move its data centre to

the Hong Kong Exchange (HKEx) co-location facility. The firm will develop low latency gateways to capitalise on HKEx’s new Orion initiatives and connect to its equities and derivatives platform.The firm’s Hong Kong operation, RTS Realtime Systems HK Limited, was exhibiting at LME Week Asia 2013 in Hong Kong in June.

Source: www.rtsgroup.net

iNSiGHTS – NEWS

iNSiGHTS – NEWS

iNSiGHTS – NEWS iNSiGHTS – NEWS US MarketS May Fall When companies begin reporting Q2 results,

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. That’s the highest number since the data provider started keeping records in 2006.

Source: www.money.cnn.com

reGulators Worry next FInancIal crISIS Won’t Be caused By Banks

“Non-bank financial firms” sounds like a non sequitur. The idea of letting these kinds of financial “grey area” firms, also known as NBFFs, continue to endanger the global economic system is fast becoming a non-starter. The US government’s Financial Stability Oversight Council, and members Treasury Secretary Jacob Lew and Federal Reserve Chairman Ben Bernanke, proposed tightening oversight of NBFFs. If passed, the regulations would name specific NBFFs as “systemically important” to the financial system, and subject them to heightened regulation. Specifically, the move would:

• Place such firms under Federal Reserve oversight;

• Require them to hold more capital in reserve against potential losses;

• Require them to undergo financial stress tests such as those that already apply to America’s biggest banks;

• Obligate each regulated NBFF to prepare a “living will” explaining how it will safely wind itself down in the event it becomes insolvent, or otherwise too weak to go on living.

Source: www.dailyfinance.com

Gold is still an attractIve InveStMent tool

Although gold prices dropped 23 per cent in the second quarter, the appetite for gold still remains. Several factors are structurally creating a natural floor in gold prices and will continue to provide support.There are two factors that will provide support to gold prices. The first factor is that, gold is being viewed as a currency rather than a commodity. In fact, central banks account for a significant portion of gold demand. Gold becomes a natural destination for

many players in the currency markets but also many retail players who are interested in having some sort of security in the currency space. The changing supply and demand dynamics for gold is the second factor. Emerging markets predominantly in Asia remain in the lead in terms of gold demand. Not only is gold culturally important in countries like India, the uses of the precious metal is evolving.

Source: www.kitco.com

iNSiGHTS – NEWS

www.tradersonline-mag.com 06.2013

expandinG chIneSe cUrrency

06.2013 expandinG chIneSe cUrrency Following the most recent shift “away” from a USD-

Following the most recent shift “away” from a USD- centric world (with the China-Australia direct currency convertibility), it seems the possibility of China’s 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 Europe’s 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

of the index.Tesla most recently had a market capitalisation of around 13 Billion dollars. Source: www.globenewswire.com

dollar Gains strenGtH

Source: www.globenewswire.com dollar Gains strenGtH Investors are becoming increasingly bullish about the U.S.

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 Bernanke’s 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

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New Products » News from the World of Technology
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»
News from the World of Technology

» Barchart.com, Inc. announced that it is now connected to NYSE Technologies’ SFTI® Network. NYSE Technologies is the commercial technology division of NYSE Euronext and provides broadly accessible, comprehensive connectivity and transaction capabilities, in addition to data and infrastructure services for mission critical trading services. SFTI stands for Secure Financial Transaction Infrastructure and also offers ultra-low latency connection speeds and huge bandwidth capabilities. With its connectivity to SFTI, Barchart has access to virtually all North American equities and derivatives markets, as well as many international markets. The additional market centre coverage adds to the depth of Barchart’s data feed division. Further, the strength of the SFTI backbone enhances the level of resiliency Barchart can provide to its clients. Additional details can be found at www.barchart.com

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 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

» Ward Systems Group released ChaosHunter 4.0, a stand-alone software tool designed to produce readable formulas to model your numeric data for applications like buy/sell signals, future value of time series, scientific, business financial or sales data and many more. To use ChaosHunter you have to enter text files or historical data from spreadsheets or data feeds. After that you can choose between arithmetic and mathematical functions that you want ChaosHunter to use. It then produces numeric formulas that you can read, understand, utilise and even sell outside of ChaosHunter. The Formula Editor of ChaosHunter allows you to make changes and apply the model to your data file. Additionally, you have the possibility to save several formulas as long as you give them different names. They can be the formula you created or a formula optimised by ChaosHunter. It is possible to transfer the formulas to other popular trading platforms, like NeuroShell, Interactive Brokers Trader Workstation, TradeStation, Ninja Trader, Wealth-Lab Pro, 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, real- time 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

Best Choice Software

Best Choice Software

» Monitoring numerous open positions can be challenging

for even the most experienced of Forex traders. To address this difficulty, MahiFX has created a new range of platform trade viewing features and options to enable customers to trade more simply and efficiently. The newly designed Position Book/Aggregation button gives traders the option to merge all open positions into easy to monitor book. By selecting the merge to master function, traders can feed all following trades of the same pair into the master trade, giving a snapshot view of their overall position. This is of particular benefit to traders who employ a scalping trading strategy. The platform upgrade also includes a ‘Book Change’ to cater to the preferences of traders who like to be able to set up multiple books and those traders who prefer a less cluttered interface. To lessen any potential confusion for less experienced traders, books are now only explicitly created and removed by the trader, rather than automatically being generated. Traders who do not wish to set up a trading book can now choose to use the trade view completely separate from the book view. For further information, please visit www.mahifx.com

» Thomson Reuters has launched a new analytics tool

on Thomson Reuters Eikon to help commodities traders and analysts predict prices in major European power markets. The new tool, Power Curve, uses innovative visualisation techniques to enable traders and analysts focused on European power markets to obtain real- time, fundamental fair value assessments of the Nordic 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 real- time fuel prices, weather, available capacity information and Thomson Reuters proprietary supply and demand models, to provide a fair value assessment of the Nordic

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and German power markets. Additional details can be found at www.thomsonreuters.com

» TipRanks announced an enhancement to its Financial

Accountability Engine, a free browser extension that provides individual investors with information about analysts who provide stock recommendations. When a TipRanks user visits a financial website such as Yahoo! Finance or Google Finance and searches for a stock symbol, a TipRanks side tab provides instant access to the three top-performing financial analysts’ stock recommendations and the accuracy rates of analysts. In addition, users can access news articles that reference the analyst recommendations or that quote the analysts on why they made those recommendations. For more information, please visit www.tipranks.com

» Trading Technologies International (TT) announced

it will offer X_TRADER with bundled access to its 35 supported markets for a flat rate of $500 per month and X_TRADER Pro for a reduced price of $1200 per month. In addition, X_TRADER will include synthetic order functionality through its Synthetic Strategy Engine (Synthetic SE), which was previously available only with X_TRADER Pro. For more information, please go to www.tradingtechnologies.com

Thomson reuters

Thomson reuters
available only with X_TRADER Pro. For more information, please go to www.tradingtechnologies.com Thomson reuters 29

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http://www.kitco.com

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NEW PRODUCTS WEBREVIEW SOFTWAREREVIEW BOOKREVIEW APPVIEW www.kitco.com Get Updated with Detailed Information &
NEW PRODUCTS WEBREVIEW SOFTWAREREVIEW BOOKREVIEW APPVIEW www.kitco.com Get Updated with Detailed Information &
NEW PRODUCTS WEBREVIEW SOFTWAREREVIEW BOOKREVIEW APPVIEW www.kitco.com Get Updated with Detailed Information &

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

Kitco.com is widely used by professional traders in collecting information and leading data. This site provides the latest news and updates from various sources like Reuters, Bloomberg, Mining Weekly, Kitco News and so

on. These are some of the most reliable sources which provide market affecting news. Figure 1 shows kitco’s homepage, which displays the latest market news reports, commentaries contributed by various traders, and information from various press releases. Kitco not

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F1) Front Page

F1) Front Page Figure 1 shows the homepage of www.kitco.com. Here, you will find data 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.

Source: www.kitco.com

only provides information and data about the market, 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 USD, GBP and EUR is also displayed here. On the left hand side in this

page, some boxes can be seen. 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 news, commentaries, press releases and important

F2) All Metal Quotes

F2) All Metal Quotes Figure 2 shows the “all metal quotes” tab page. Here, you will

Figure 2 shows the “all metal quotes” tab page. Here, you will see all major bullion’s updated quotes and three major currency fix prices.

Source: www.kitco.com

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t o o l s www.tradersonline-mag.com 08.2013 The site provides updates, news, reports, data as well

The site provides updates, news, reports, data as well as analysis of bullion for professional bullion traders.

as analysis of bullion for professional bullion traders. analysis is seen on the right hand side.

analysis is seen on the right hand side. You can see technical charts not only for gold, but those for silver, platinum and palladium as well. Historical charts are also provided by clicking on the historical charts box. Detailed lease rates or precious metals are shown after clicking on the lease rate box. Here, traders will get all data (forward rates, lease rates from various time angles) regarding gold, silver, platinum and palladium.

F3) News & Reports

F3) News & Reports Figure 3 shows the news & reports page of Kitco, where you

Figure 3 shows the news & reports page of Kitco, where you can see various research reports from various financial institutions.

Source: www.kitco.com

Traders can check and discuss with others in the gold forum tab page, where trader can read some general thoughts and opinions of other traders, as well as ask questions to the forum.

Reliable Sources of News and Reports

If we move further to the research reports from various

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 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 Windows mobile users can also enjoy these services by installing a Kitco software called Kcast on their mobile devices. «

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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

During the development of the service the security of the investor funds accounts was one of the most critical issues within this complex task. That is why a signal has to pass an obligatory one-month test period, before it is available for paid subscription. During the test period subscription is blocked and the provider performs trading operations like making profits and bearing losses. Only after completing the one-month period with a profit the signal can be subscribed to. Loss-making signals remain in the test mode. Perhaps

they will show profit in the future, but until then they cannot be subscribed to.

No Overtrading

An important feature of MetaTrader Trading Signals is the absence of conflict of interest between all participants. Signal providers receive a fixed subscription fee regardless of the number of deals and profits earned, so it does not make sense for them to perform frequent small trades in order to receive more commission fees or take too much risk trying to earn

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F1) Subscribe-Window in the MetaTrader Platform

F1) Subscribe-Window in the MetaTrader Platform In the above window a user can define risk-parameters to

In the above window a user can define risk-parameters to the subscribed signal and enable real-time trading.

Sourcee: www.metatrader.com

Conclusion

MetaQuotes provides traders with the most secure solution for social trading. End-users have appreciated it. Thousands of traders have become signals providers and are already offering their trading signals on MetaTrader 4 and MetaTrader 5 terminals. Thousands of other traders have become their subscribers thus gaining the opportunity to make money on forex with little extra effort. «

F2) Listing of All Available Signal Providers

F2) Listing of All Available Signal Providers A lot of systems passed the first month and

A lot of systems passed the first month and could be subscribed to after taking an in-depth look.

Sourcee: www.metatrader.com

more. The incentive for the signals

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

following to check how profitable and reliable it is. Another instrument to protect

the investor is the mechanism that one trading account can only copy signals of one provider. This limitation pursues the same goal – security of investors’ funds.

If a trading account is managed by several signals,

they seriously overload the deposit and that may lead to the rapid loss of funds. Besides, several trading signals on one single account can conflict with each other. For example, one signal may require entering

a short position with three lots,

while another one may demand entering a long position with five 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.

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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

VectorBull can be used with any kind of historical price data while ForexBull is specialised on forex and commodities. Both programs analyse the historical price development of the chosen instrument and predict the highest probable price development in the future based on similarities in the price development of the past. Different software providers already offer pattern analysis, but whereas those often offer mainly candlestick charts, Spring Techno chose a different way. A current chart pattern for the price development of a stock, for example, the relation of open, high, low and close of the last few days, is generalised and then searched for in the stocks’ historical database. Recurring chart patterns show the behaviour of market participants in certain market environments. This assumption is based on behavioural psychology and has been confirmed sufficiently in financial studies. Next the software calculates the probability of occurrence (expressed as a percentage) of the price tendency based on the number of similar patterns found. VectorBull makes a precise prognosis and determines the expected highs and lows within a certain time period. The user can get a prognosis for a day or for two to three weeks as well. However, the

longer the period of prognosis, the greater the possibility of false signals. Figure 1 shows the working screen with the analysis of the Apple share in indicator mode. On the left is the menu bar with all options to choose from. On the 10th of June 2013 Apple’s share should fall with a probability of 68 per cent. You can find the details of the prognosis and the formation that determined the result below the chart. On

this day the stock had a potential to 444.25 dollars followed by a low at 433.68 dollars before closing at 437.11 dollars. Of course we checked this. The daily high was at 449.08 dollars and the low at 436.80 dollars. The close of the stock

at 438.89 dollars was near the prognosis.

Installation and Possibility of Trial

VectorBull can be purchased for 499 euros or it can be rented. Before buying, the user has the possibility to test each version for a period of 14 days. You have to download

a seven MB-file from the website in order to install the

program. The installation is done once per version and if you buy it you receive an unlock code – a user’s licence including updates and data feed. The software needs an internet connection, because the historical data will be downloaded from the company server only when needed.

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F1) Working Screen vectorBull

F1) Working Screen vectorBull The working screen of VectorBull in indicator mode. If the software finds

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

can compose every tradable universe of instruments and the system will calculate daily signals. Let’s focus on the Apple share. It has increased

over years. A trading system should be profitable after

a trend reversal to the downside. The holding period

will be five days. Therefore we used the trading system mode of the program. The price development of Apple was analysed and the program searched for formations. Then the system finder searches ideal combinations of

a strategy in so-called “evidence mode”. That means

that signals are tested for two thirds of their history and then you receive a list of all trading system data as a

F2) System in real Time

F2) System in real Time The trading signals work in real time as well as in

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.

Source: www.vectorbull.com

Further cost only occurs with the

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. 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 prognosis that can be examined immediately. The time frame of the prognosis is set in days and the chart with

the prognosis – bullish, bearish or neutral – is displayed after a short time of calculation. In the trading system mode the user is challenged. He can test more than 40,000 entry- and exit parameters with a system finder for every single stock. Each trading system can be saved as a scenario and can be used in combination with hundreds of such scenarios in different markets to generate orders accordingly. The so-called “AutoTradeAdvisor” delivers the data that should be set in the trading platform

– limit entry, position size, stop-loss and profit target.

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

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result. The software displayed 1121 profitable systems out of 9521 calculations. We terminated early to avoid over-optimisation. We search for a system that shows an increasing equity curve even with the missing third of data and sort it by the profit factor. The system recalculates and updates the equity curve by the last third of the history that was not included in the first calculation. Although Apple showed considerable price loss in the recent past, the price losses of the chosen system are limited. According to the developer, the software learns with new data and therefore the pattern analysis is adapted. The trading system parameters of the system chosen are then saved as a scenario and are only valid for the Apple stock. This process has to be done once for each stock that you want to add to your preferred trading universe. The AutoTradeAdvisor checks the single scenarios and adds it as an order for the user.

Trading Systems in Real Practice

Of course we asked if such scenarios could be traded real time as well. Figure 2 is an example that clients of a German broker have used on their own trading accounts for over a year now. Spring Techno determined scenarios of 14 US-stocks with a holding period of five days. The result is impressive: The account size was 14,000 euros and the risk per trade was 0.5 per cent at maximum. It began at the beginning of 2012. The total performance was 15 per cent or a total profit of 2100 euros. According

to the developer you could also trade it with less money using CFDs. That shows that it is possible to earn money with the scenarios and that they are not theoretical results. Every user has the ability to create a scenario for each of the 25,000 shares and to combine those to generate trading orders. The developers also deliver, for example, catalogues for sector-indices to analyse individual shares within these sectors. Therefore a trading system is possible that generates signals, for example, based on the 30 DAX-shares or the shares in the NASDAQ100. Furthermore, the user can create buying- and selling- scenarios for all important commodity futures to build call-write positions after the signal. Another feature is

the so-called “crystal-ball”. It is used to create a list that shows if the particular day is bullish, bearish or neutral for the chosen title based on the vector analysis. The system predicts the next five days and in addition there

is a total prognosis including the evaluation of the trend

strength.

VectorBull-Realtime Offers Intraday-Prognosis

A completely different thing is the Vector-Bull-Realtime-

version. It might be the same name, but it is designed for a completely different user group. In contrast to the stock-edition the program does not generate entry- and exit signals, but a prognosis line for the next 24 time units is created – based on a database of up to 15 years

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 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 realtime-

price-data for free. In total there are

F3) real-time version for Daytraders

F3) real-time version for Daytraders A blue prognosis line offers hints how the analysed instrument may

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.

Source: www.vectorbull.com

60

DAX stocks, Dow Jones Index,

40

currency pairs and 25 indices,

futures and commodities. We tested the software non- stop and the price development was predicted very well. But there are difficulties if there is important 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.

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The prognosis line was created on 24th June 2013. The current price developments are displayed above the prognosis line as a bar chart. Processed prognosis stay in the chart and a new prognosis is generated after the current bar is closed. The blue line often differs from the price, but the trend is correct – therefore an update was programmed in the last days to improve the relation of the prognosis line to the actual price. And the analysis of the prognosis and the current price is better. The price of this intraday-software is 1295 euros, but it can be rented as well.

the daily range of fluctuation. Therefore he can place the stop accordingly and avoid to be stopped out by a random movement of the market. An overview of signals offers recommendations for the trading day. At 7 o’clock in the morning you can download the so-called “Early-Bird-overview”. This table concludes entry, direction and potential and shall offer an advantage to the early-risers. This table, which should provide a surplus value especially to the early birds, combines entry, direction, and potential. Another novelty 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 out because of its considerable additions and that offers analysis instruments only for currency pairs, commodities and some interest- and stock indices. Trading systems can be developed just like in the stock-version. You will see what is offered in addition, if you use the menu “tools”. Following is a list of additions to ForexBull:

Conclusion

The Vector-series of Spring Techno offers automatic pattern recognition without additional cost – in contrast to other charting programs. You can count on the accuracy of the signals in the future, because the software is continuously fed by the latest prices in all versions. In the meantime brokers already offer the stock-version to their clients to generate automatic signals for individual instruments. We especially liked the real-time version, because it is another tool for the daytrader to find better entries. If you are interested you should test the different software versions to see which one fits your trading behaviour. «

• Correlation matrix that opposes all titles

• Overview of volatility with the daily movements of the past twelve weeks

• Momentum-guard, that shows trends for six different time frames

• Table of the changes since the beginning of the year, of the past

six months and of the current 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

F4) ForexBull Overview of volatility

F4) ForexBull Overview of volatility ForexBull offers various tools that are not available in the stock-edition.

ForexBull offers various tools that are not available in the stock-edition. The overview of volatility helps traders to place stops correctly.

Source: www.vectorbull.com

Furthermore the ATR- indicator, pivot-lines and a regression channel, that is drawn automatically, were added to the chart module. Figure 4 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- side whereas the daytrader learns

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Kathleen Brooks on Forex

A Simple Approach to Trading Foreign Exchange
A Simple Approach to Trading Foreign Exchange

A Simple Approach to Trading Foreign Exchange

A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks
A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks

Using Fundamental and Technical Analysis by Kathleen Brooks

A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks
A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks
A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks
A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks
A Simple Approach to Trading Foreign Exchange Using Fundamental and Technical Analysis by Kathleen Brooks

About the Author

Kathleen Brooks is UK and EMEA research director at Forex. 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 Master’s of Science from The Graduate School of Journalism at Columbia University in New York City.

» This concise and well written beginner-level guide to foreign exchange is something different, with the author’s 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

ement
ement

Bibliography

Title:

Kathleen Brooks on Forex

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

engages trading strategy using effective risk management

techniques.

As you would expect from a book with the author’s uthor’s

name in the title, this is a look at one FX trader’s personal rsonal

approach to the market. It is an illustration of one person’s rson’s

way of doing things – it does not claim to be definitive, initive,

or state that you must do things this way, which is s to to its its

credit, as there is no single correct method for trading. ading.

However, it is by learning how other successful traders ers are are

operating – and incorporating some aspects of what at they the

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. «

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NEW PRODUCTS WEBREVIEW SOFTWAREREVIEW BOOKREVIEW APPVIEW
NEW PRODUCTS
WEBREVIEW
SOFTWAREREVIEW
BOOKREVIEW
APPVIEW
NEW PRODUCTS WEBREVIEW SOFTWAREREVIEW BOOKREVIEW APPVIEW Trading Diary-App The Trading Journal for your iPad Every

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 one’s 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

After downloading and starting the application, a clearly structured screen appears in the upper bar depicting the three steps of keeping a trading journal. Before you start it is recommended to determine all parameters for the

for risk- and money management. Thus you can enter the account size as well as the risk per trade and the maximum drawdown per month. After defining the basic conditions, the first step requires the following data for a trade that has to be typed in the area “plan”:

TOOLS

TOOLS A trading journal is only helpful if the entered trades are analysed regularly. • Ticker

A trading journal is only helpful if the entered trades are analysed regularly.

only helpful if the entered trades are analysed regularly. • Ticker symbol • Order type •

• Ticker symbol

• Order type

• Entry price

• Initial stop-loss

• Profit target

The app automatically calculates the particular position size, the potential profit as well as the risk- reward ratio (RRR). A useful feature is the implementation of graphics from the iPad’s picture gallery. The reason for the entry is also very important. Thus the trader has the possibility to put his trading plan into words. Even weeks or months later you can understand the motivation behind the precise trade.

or only losing trades, this can be done with a single click as well.

Step 3: The Analysis

A trading journal is only helpful if the trades entered are analysed regularly. This is where the area “review” comes into play. Here you can analyse and evaluate closed trades. It makes sense to answer questions such as:

• Did you execute the trade according to plan?

• Did you make mistakes? If yes, which mistakes?

• How do you feel after the exit?

• What can you do to improve your trading in the future?

Step 2: Entry and Exit

After executing the planned transaction you enter all parameters of the entry like date, time, order type, quantity and execution price in the area “trade”. Here

as well, the trader can insert charts as picture files and add comments. Especially if the stop-loss is trailed this is a good

way to add pictures or words to a 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

Another interesting feature is the reminder function which is adjustable. Eight weeks after the analysis the trader is reminded to perform a “follow-up”-analysis. The idea: After a certain time period, the trader can evaluate his own trading behaviour more objectively than immediately

F1) Entry and the Exit

F1) Entry and the Exit In the area “trade” all parameters concerning the entry and the

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

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F2) Equity Curve

F2) Equity Curve In the area “results” the trader finds the equity curve as well as

In the area “results” the trader finds the equity curve as well as other statistics – for example hit rate, RRR or holding period.

Source: www.plumsquare.com

F3) Overview of Key Figures

F3) Overview of Key Figures The function “statistics” offers a detailed view of the performance parameters:

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.

Source: www.plumsquare.com

after the exit – furthermore you can 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. 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 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:

• Winners versus losers (%)

• Overall results

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• Average winning trade (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 sort by criteria such as trading instrument, results, entry- and exit rating or date.

F4) Diary Function

F4) Diary Function The flexible data base function enables an easy and quick sorting of all

The flexible data base function enables an easy and quick sorting of all parameters of a trade.

Source: www.plumsquare.com

Conclusion

The trading diary app from Plum Square is a powerful and easy-to-use tool for everybody who wants to document and analyse their trades directly on the iPad. The risk- and

money-management function helps to stick to the risk limit and offers valuable services calculating position size. At a price of 159.99 EUR, the app seems expensive at first glance, but if you look at the extent of functions and features the price is justified. Thumbs up! «

at first glance, but if you look at the extent of functions and features the price

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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 known as the 5x5x5 Portfolio Method because it bought stocks which closed five per cent below their 5-day Moving Average (MA) on a limit five per cent below the close and exited above the 5-period MA. Since that time we have expanded this strategy further to include multiple Moving Averages as entry and exit triggers, along with multiple levels of pullbacks, with multiple levels of intra- day pullbacks. Then we looked at various exits points to allow for even more flexibility in your trading.

What Is a Pullback?

A pullback is a security which has moved higher and then because of profit taking (and numerous other reasons)

sells-off in price. Some traders trade pullbacks intra-day or on longer time frames but the majority trade them on daily bars identifying stocks that they feel have pulled back too far and will likely regain their upward trend. There are numerous ways to identify pullbacks ranging from simply eye-balling a chart all the way up to using indicators such as Fibonacci numbers. Even though these techniques work for some traders, what we want to do is to be more precise. We want exact rules in place and we want to see robust quantifed test results from 2001 to 2011 (our test period). We also want to see the strategy showing solid test results in the majority if not all of the many combinations of parameters that we are testing on. This way you as a trader can then customise

the strategy to fit best into your daily trading plan. When trading short term pullbacks, the best results occur when you hold the position for at least a few days. Often stocks pull back sharply and snap back strongly. There is no way of knowing ahead of time how far that upward move will be so having exit rules in place ahead of time which allow for the rally to play out is the best way to trade.

Long Pullbacks: The Rules

The Long Pullbacks Strategy rules are simple and precise:

1. The stock must be above $5 per share and close above its 200- day simple Moving Average.

This signifies it’s in a longer term uptrend.

2. The stock’s average daily volume over the past 21 days (one trading month) must be at least 250,000 shares per day. This assures we are in liquid stocks.

3. The stock’s 100-day historical volatility is above 30.

4. The stock’s 10-day Average Directional Index (ADX) is above

30.

5. The stock has closed down two or more days in a row.

F1) Pullback Trade Example

3 1 2
3
1
2

RSI

F1) Pullback Trade Example 3 1 2 RSI 29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00

29.00

28.00

27.00

26.00

25.00

24.00

23.00

22.00

70.00

30.00

29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00 70.00 30.00 3 4 5 8 9 10
29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00 70.00 30.00 3 4 5 8 9 10

3

4

5

8

9

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 today’s 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

6. Today the stock must close at least X per cent (X = 4, 5 or 6 %) below its Y-period Moving Average (Y = 4, 5, or 6). This will be clearer once you see the examples.

Rule 7 makes everything gel. Whereas most pullback methods may have small edges, this rule assures that the pullback is even deeper and because it is occurring intra-

If

7. 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 yesterday’s

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 simple Moving Average, exiting at the closing price. We also show the test results exiting the same day, on the first up close, and using 2-period RSI exits (the goal here is to empower you with as many choices as possible).

Rule 8 assures that we have an exit in place. We state this quite often because it is a pet peeve. Everyone likes to tell you when to get into a stock. Few tell you when to get out and even fewer have quantified, structured, disciplined exit rules. Rule 8 gives you the exact parameters to exit backed by a decade of historical results.

Let us now go deeper into Rules 6 to 8. Rule 6 is there to identify the pullback. A stock that closes far below its short term Moving Average is a good short term pullback.

Examples

Let us look at a chart example. In Figure 1, MAKO Surgical (MAKO) was trading above its 200-day Moving Average and

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had historical volatility and ADX readings above 30. We use a 4-period MA (for parameter X), a close at least five per cent below the MA (for Y), and a buy limit order seven per cent below the previous day’s close (for Z). This is what happened:

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 will look to buy on a limit order seven per cent below today’s close.

Point 2: The stock sells off more than seven per cent from the previous day’s close and a Long Pullbacks signal is triggered.

Point 3: MAKO moves sharply higher and closes with its 2-period RSI above 70. Lock in your gains on the close.

Test Results

When traders ask what is a good edge (meaning the average gain per trade) on a short term basis, meaning under a week, the rule of thumb is 0.5 per cent up to

two per cent per trade. This includes all trades. It is the number of winning trades times their average gain minus the losing trades times their average loss divided by the

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

lose one per cent on average you have 120 per cent minus

40 per cent divided by 100. In this example the average

gain per trade is 0.80 per cent. We now look at the top 20 returns per variation of The Long Pullbacks Strategy (Table 1). These are the returns for the eleven year period 2001 to 2011. The gains and edges have been substantial, especially for the largest intra-day pullbacks; those which have pulled back eight and ten per cent. The first column shows the number of trades that triggered during that period of time. To assume a fill was made in the testing the stock had to trade at least one cent under its limit price (it need to trade through the simulated order).

Column 2 shows you the average gain per trade (the average edge) of all trades. As we just mentioned 0.5 to two per cent are considered excellent. 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 trades which were profitable. Most traders like to get to 55 to 60 per cent correct. The majority of the top 20 variations here are above 75 per cent correct. Column 6 is the Moving Average used. We ran this test using a 4-, 5-, and 6-day simple Moving Averages. As you can see, all are valid. 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. Column 8 is the percentage distance from the close that the limit order is placed. So if a stock qualifies 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.

T1) Top 20 Strategies Based on Average Profit

No. of

Avg. %

Avg. Trading

% Winners

Exit

MA

Stretch

Limit

Trades

Profit

Days Held

Methodology

Length

Entry %

808

6.75%

6.24

75.62%

RSI2>70

6

6%

10%

751

6.55%

6.35

74.17%

RSI2>70

5

6%

10%

948

6.41%

6.26

74.89%

RSI2>70

5

5%

10%

632

6.35%

6.48

73.42%

RSI2>70

4

6%

10%

1071

6.27%

6.18

75.54%

RSI2>70

6

6%

9%

1016

6.20%

6.22

75.00%

RSI2>70

6

5%

10%

829

6.19%

6.34

74.19%

RSI2>70

4

6%

9%

982

6.14%

6.30

74,34%

RSI2>70

5

6%

9%

638

6.12%

3.66

77.27%

RSI2>50

4

6%

10%

757

6.06%

3.67

76.62%

RSI2>50

5

6%

10%

816

6.03%

3.64

77.08%

RSI2>50

6

6%

10%

1261

6.00%

6.20

75.42%

RSI2>70

5

5%

9%

839

5.99%

3.53

77.12%

RSI2>50

4

6%

9%

865

5.91%

6.43

72.95%

RSI2>70

4

5%

10%

955

5.88%

3.59

77.17%

RSI2>50

5

5%

10%

1215

5.87%

6.22

74.73%

RSI2>70

5

4%

10%

1245

5.85%

6.18

75.10%

RSI2>70

6

4%

10%

1350

5.84%

6.13

75.41%

RSI2>70

6

5%

9%

994

5.79%

3.54

76.86%

RSI2>50

5

6%

9%

1086

5.73%

3.49

77.81%

RSI2>50

6

6%

9%

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

strategies

Strategy Snapshot

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 yesterday’s 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:

Risk and money management:

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

Average hit rate:

61.19%-78.29%

Average trade:

1.61%-6.75%

It should come as no surprise that the higher the

limit order, the greater the fear, and the greater the 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 matter what the year was. It simulated all trades for eleven years and as you can see the edges have been extremely large. 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 today’s limit order. The larger the limit order, the greater the performance.

T2) top 20 strategies Based on Per Cent Winners

No. of

Avg. %

Avg. Trading

% Winners

Exit

MA

Stretch

Limit

Trades

Profit

Days Held

Methodology

Length

Entry %

820

5.55%

2.49

78.29%

C>MA3

6

6%

10%

1092

5.24%

2.41

78.11%

C>MA3

6

6%

9%

959

5.40%

2.47

78.10%

C>MA3

5

5%

10%

1276

5.56%

3.46

77.98%

RSI2>50

5

5%

9%

1282

5.06%

2.41

77.85%

C>MA3

5

5%

9%

1086

5.73%

3.49

77.81%

RSI2>50

6

6%

9%

1679

4.95%

3.39

77.67%

RSI2>50

5

5%

8%

1430

5.16%

3.41

77.55%

RSI2>50

6

6%

8%

1284

4.55%

1.66

77.49%

Up Close

5

5%

9%

960

4.84%

1.71

77.40%

Up Close

5

5%

10%

839

4.82%

1.66

77.35%

Up Close

6

6%

9%

823

4.97%

1.70

77.28%

Up Close

6

6%

10%

1096

4.67%

1.65

77.28%

Up Close

6

6%

9%

638

6.12%

3.66

77.27%

RSI2>50

6

6%

10%

638

5.48%

2.50

77.27%

C>MA3

6

6%

10%

759

5.48%

2.51

77.21%

C>MA3

6

6%

10%

1924

4.79%

3.35

77.18%

RSI2>50

6

6%

7%

855

5.88%

3.59

77.17%

RSI2>50

5

5%

10%

839

5.99%

3.53

77.12%

RSI2>50

6

6%

9%

638

4.92%

1.73

77.12%

Up Close

6

6%

10%

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 today’s limit order. The larger the limit order, the greater the performance.

Source: Connors, L./Alvarez, C., “The Long Pullbacks Strategy”, Connors Research, LLC, 2012

The Role of Exits

Different exits will give different test results. The first place traders look is the size of the edge and use the exit that provides the greatest edge. But 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 average) smaller edges but get out of positions quicker, lessening the overnight risk. The Long Pullbacks strategy is extremely robust and it was created to allow every trader to 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.

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T3) Top 3 of Each Exit Type (Based on Average Profit)

No. of

Avg. %

Avg. Trading

% Winners

Exit

MA

Stretch

Limit

Trades

Profit

Days Held

Methodology

Length

Entry %

823

4.97%

1.70

77.28%

Up Close

6

6%

10%

638

4.92%

1.73

77.12%

Up Close

4

6%

10%

960

4.84%

1.71

77.40%

Up Close

5

5%

10%

820

5.55%

2.49

78.29%

C>MA3

6

6%

10%

638

5.48%