Quick Quiz – Test Your Trading Knowedge

Question last week’s Round-the-Clock-Trader

(scroll right to the bottom for answers)

1 What does the F.O.M.C stand for?

2 Our sponsors Societe Generale offer ETPs – what does ETP stand for?

3 If I was planning to ‘go short’, which direction would I be expected the price to move?

4 Which legendary investor once said “You only find out who is swimming naked when the tide goes out”

5 A broker quoted two prices – a ‘bid’ and an ‘offer’ – what is the difference between these two prices known as?

6 Where would you find the CBOE?

7 The Wolf of Wall Street was famously portrayed by Leonardo Di Caprio in the movie of the same name, but what was his real name?

8 On average how much volume was traded daily during 2015 according to Thompson Reuters?

A – Over $5 trillion

B – Between $3 – $4 trillion

C – Around $2 trillion

 

9 What was yesterday’s FTSE 100 index closing price (20th January 2016)?

10 In technical analysis, if you recognised a confirmed ‘Double Bottom’ you would expect the price to begin…

A – Falling

B – Rising

 

11 Who is currently the Governor of the Bank of England?

 

12 0,1,1,2,3,5,8,13,21,34…

What is this series of numbers more commonly known as?

13 In 2008, the collapse of which US investment bank triggered the start of the global financial crisis?

14 How many companies are traded/listed on the NYSE?

A – 10,500

B – 2,800

C – 1,500

15 If a trader incorrectly keys in an order, it is known as

A – Fat Finger Error

B – Lazy Finger Error

C – Hot Finger Error

 

Scroll down for the answers 

 

 

 

 

 

 

 

 

 

 

Answers –

1 What does the F.O.M.C stand for?

Federal Open Market Committee

Q 2 Our sponsors Societe Generale offer ETPs – what does ETP stand for?

Exchange Traded Product

Q 3 If I was planning to ‘go short’, which direction would I be expected the price to move?

Down

Q 4 Which legendary investor once said “You only find out who is swimming naked when the tide goes out”

Warren Buffett

Q 5 A broker quoted two prices – a ‘bid’ and an ‘offer’ – what is the difference between these two prices known as?

The Spread

Q 6 Where would you find the CBOE?

Chicago – “Chicago Board Options Exchange”

Q 7 The Wolf of Wall Street was famously portrayed by Leonardo Di Caprio in the movie of the same name, but what was his real name?

Jordan Belfort

Q 8 On average how much volume was traded daily during 2015 according to Thompson Reuters?

A – Over $5 trillion

B – Between $3 – $4 trillion

C – Around $2 trillion

 

Q 9 What was yesterday’s FTSE 100 index closing price (20th January 2016)?

5,673

Q 10 In technical analysis, if you recognised a confirmed ‘Double Bottom’ you would expect the price to begin…

A – Falling

B – Rising

 

Q 11 Who is currently the Governor of the Bank of England?

Mark Carney

Q 12 0,1,1,2,3,5,8,13,21,34…

What is this series of numbers more commonly known as?

Fibonacci Sequence

Q 13 In 2008, the collapse of which US investment bank triggered the start of the global financial crisis?

Lehman Brothers

Q 14 How many companies are traded/listed on the NYSE?

A – 10,500

B – 2,800

C – 1,500

Q 15 If a trader incorrectly keys in an order, it is known as

A – Fat Finger Error

B – Lazy Finger Error

C – Hot Finger Error

 

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FTSE’s outlook hinges on the Fed’s views on the US economy so caution is advised

The volatility in the global money markets remained elevated and along with it the lack of momentum and uncertainty of the US economy create a difficult field to tread for traders and investors alike. The new year hasn’t started with the best of conditions and apart from the situation in the Asian markets what worries me more is the lack of a clear outlook regarding the US economy and the Dollar.

Even though the Fed hiked their key interest rate in December and everyone expected the Dollar to rally higher as soon as the new year started what we’re seeing is a lack of consistency and that translates to uncertainty in the global stock markets and of course the FTSE 100. As long as investors don’t have a clear outlook on how the US economy is fairing and whether they should expect a more bullish policy from the Fed the situation in the stock indices will remain pretty much the same.

Given that I want to remind you how important is to remain focused on the short-term, even intra-day outlook of the various indices, the FTSE 100 included. What we’re seeing now is a drift without direction as traders are not willing to take any longer term positions while the price action remains choppy. So for this week my two main scenarios will revolve around the breakout from the recent highs and lows the FTSE has printed in recent sessions.

To the upside I am looking to enter long should the London index break above the 5,950-60 points’ area and I would like to try to get as much as I can targeting the 6,050-60 area without risking to stay too long in the market. To the downside, the obvious support lies in this morning’s lows at 5,770 points and a clear break of this area should send the FTSE 100 to test its monthly lows around the 5,650 points’ level.

If you want daily trade signals on the FTSE 100 and the Euro, the Pound, Gold and more Forex, Stock Indices and Commodities instruments I am recommending my Sentinel Signals report that has an impressive performance. You can find more information on Sentinel Signals by clicking on this link.

alpesh

Missed Alpesh’s FX webinar clinic yesterday?  Sign up now for his Encore Live Trading Online Training Tomorrow (27th January 2016 – Click here

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Bo Yoder S&P Analysis

The S&P 500 (ETF Proxy – AMEX:SPY) has behaved exactly as forecast in my last column. Price has bounced over and over within the grey “Struggle Zone” and offered many profit opportunities for intraday traders as we wait for a sustainable daily bottom to form.

I am waiting for the chance to put on some short exposure for what we are forecasting will be a major new leg to the downside. As price rallies in this bounce to areas of resistance I’ll hope to be able to update this chart with a new red zone in the next week or two.

GLD 1-23-16

 

“Alphabet” (NASDAQ:GOOG) has rallied dramatically in the last year, and now is showing signs of a major top.  You can see our forecast for an area of short exposure on the chart here in red.  This top could precede a major decline in the stock’s price, so I have no profit objective at this time.

GOOG 1-23-16

The weekly chart of gold, as expressed below by the GOLD ETF (NYSE:GLD) has made a significant bottom on its weekly chart.  Having confirmed its recent daily lows by forming a higher low/higher high pairing in its daily chart, we are forecasting that this market will likely chop sideways for the next week or two as it gathers strength for a new leg to the upside.spy 1-23-16

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Should you to Add to Winning Positions?

If you catch a great trending move, scaling into it is a great trade adjustment to increase your max profit.

In my trading over the years I have found that the easiest way to build good and fast returns is to be in a larger position when correct in my market call that when I am incorrect. This sounds simple and trivial but it’s exceptionally difficult to do. As with all things in financial markets it’s the difficult things emotionally that makes the money.

Most of the trading books and sources advocate scaling out of positions and that means that when you call the market with precision the big move is held with only a 1/3 or ½ of the initial position. If your market call is poor then you take a hit with the full position. That’s not the way to get ahead. Over the years I have used both methods. Scaling out is emotionally easier as it’s quite easy to take lots of small profits. I struggled to get ahead because the losses were much bigger than my gains. At best my account stayed around the same level with no progress, but at the same time no drawdown.

Adding to winning positions take strength and I will address the psychological reasons for this a little later in this blog entry. For a good read on adding to positions and how it made a group of traders’ world famous and rich, please search for the “turtle traders” on the net. This group of youngsters were taught how to trade by veteran futures trader Richard Dennis in the 1980,s and adding to winners was a large part of their success. There are many books and even a very expensive course on their methods. The entry they say is the least important part of their system and for the record, the entry was a break on an intraday basis of a 90 day high. If the position went well they simply added via a pre-defined plan which is fully disclosed in the free “turtle trading rules”. If you can’t find these please let me know and I will send you the details. I found the story and legend of the “turtles” very motivating in my journey as a financial trader. There were most definitely much bigger in position size when they were correct in their calls than when they were proved incorrect.

Let’s look at a simple VectorVest system

  1. Select a Unisearch to find shares that suit you. For example my “small cap rockets” search finds shares that have a high earnings potential (RV>1.4) that are in the throes of a strong trend (CI>1.4). In this search I only look at shares with a market capitalization of less than 500 million. I then sort the shares by the Master Indicator VST (value, safety and trend).
  1. Wait for a Market Timing signal to enter. This can be any of the 5 signals that occur as the VectorVest Composite turns from down to up. We have signals for very aggressive traders to signals for conservative investors. The most conservative signal is called a Confirmed Call and it’s shown clearly on the front page of VectorVest. A slightly less conservative signal is named the DEW. With a single mouse click the BUY and Sell, Market Timing signals are displayed on the chart of the VectorVest Composite and on each share within the entire market if desired. I enjoy the DEW signals as they are reliable and they also enter and exit the market close to the turn. For new VectorVest people and non VectorVest people I have covered a lot of material here. On Monday 25th I will be conducting a webcast at 130 PM UK time and will devote most of the time to the study of all the VectorVest Market Timing signals. At present as I write on Friday 22nd January 2016 all of the VectorVest Market Timing signals are saying DOWN save the most aggressive which turned UP after the close. It’s NOT a time to be buying shares but it’s getting close.
  1. Let’s assume we have found both a Unisearch that suits our capacity for risk and a Market Timing signal such as the DEW has fired a BUY signal. In the third part of our simple plan we should wait for the shares in our search to break up with the market. In Unisearch there are HI LOW searches that can automate this. This technique was discussed in an excellent strategy of the week that was done about a month ago by VectorVest education. If you can’t find it please call support and they will get you the link. As any share from your Unisearch breaks up through a 26 week high or 52 week high (the choice is yours and should be in your plan) a purchase can be made. Many traders use a moving average cross to time the entry when a Market Timing signal has fired and they argue that this technique frequently gets onboard prior to the breakout. An 8 ema crossing above a 50 ema gives robust signals which are easy to see visually and with the PROTRADER add-on to VectorVest can be a part of the initial Unisearch.
  1. How many shares to BUY is the most important question we can address. This concept is known as position sizing and it’s a critical part of your trading plan. I keep it very simple as follows.

Initially I don’t like to risk any more than 1% of my capital in any single trade. In very large accounts I start with ½% risk on any single trade. If I have 50000 pounds in my account, 1% risk amounts to 500 pounds. The Dart group makes a good example. The breakout level to BUY is at 6 pounds and I estimate that when the breakout occurs the VectorVest stop loss will be around 5.20 pounds

Thus the Risk/share is 0.80. Just subtract the two numbers.

Let the number of shares bought =N

N *(Risk/share) =1% of my account size

N=1% of my account size/ (risk/share)

N=500/0.8=625 shares

If I BUY 625 shares in Dart at 6 pounds and exit at 5.20, if the call is incorrect, then I will have lost 1% of my portfolio. To survive as a trader applying this simple equation in each and every trade is vital.

  1. Let us assume all goes well and the share starts to move upwards strongly. Invariably the position will break and then come back and “kiss” the old resistance at 6 pounds. After the break and kiss the upward movement should restart and when the market breaks above the last new high then I get interested in adding to the position. Firstly and most importantly it’s vital NOT to add to any position until the stop loss on the first tranche of shares can be brought to entry. If I add to the Dart position at around 6.80 and then adjust the stop on both positions to the initial entry at 6 pounds the risk remains at 1% of my capital. I am now twice as big in a winning hand as I will be in a losing hand. I don’t have any problems in adding again but being twice as big when correct will have an enormous effect on your bottom line. If I add again then the stop on all positions should be placed at the entry level of the 2nd round of buying.

 

  1. The VectorVest valuation on Dart is 9 pounds. If I bought the share at 6 and let that single position run to 9 the reward to risk would be 3/0.8=3.75. If I add once at 6.80 the reward to risk is now 3.75 on the first position and 2.75 on the second. This pushes the reward to risk to a combined 6.5. Adding to winning positions pushes the reward to risk through the roof. In most texts the reward to risk is incorrectly referred to a risk to reward. In shares like JD Sports that have moved strongly adding to positions can result in a portfolio rebalancing problem as the profits roll in. It’s a grand little problem to have.

 

The above is a very simple set of rules with little subjectivity. Why is it that most of us have difficulty in following a simple set of trading rules? I could write for days on this and in the past have done 3 day workshops to institutional traders on this topic. Here I wish to just discuss a simple adjustment in your thinking that may help to hold on to winners and cull losers. Please meditate on the following thoughts.

 

When a typical trader has a winning position they tend to become FEARFUL in their thinking. They have an enormous fear that the profits will disappear. When a typical trader has a losing position they tend to become OPTIMISTIC. They become optimistic that the position will turnaround.

If there is a secret to trading it’s the following.

When you have a winning trade become optimistic and when you have a losing position become fearful. Become the silent watcher of your thoughts in your next trade and practice this. It’s a small fix but it can change your bottom line positively in a very short period of time.

David Paul

January 22nd 2016

OFFER – Sign up for your 5 week trial of VectorVest (US & UK) and receive a free 5 week course with David Paul.  All for £5.95 ($9.95) – click here to get started.

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Focus on the short-term outlook of the FTSE 100 this week as sentiment remains mixed

The FTSE 100 has started the year in a bearish manner having lost the 6,000 points’ level on the back of the market uncertainty fuelled by the situation in the Asian markets. The global stock markets in general have been under pressure as the new year has begun with doubts on whether the global slowdown will continue and if it’s possible to become worse.

The point is that the FTSE has been under pressure and just last week the index hit a fresh low around the 5,750 points’ area. The issue here is that apart from the broader fundamental environment that I detailed above the London index is not receiving any support from the domestic market either. The economy in the UK has been fairing ok in general over the recent months but nothing too exciting to help the FTSE to remain afloat.

As such I remain sceptical over the index’s outlook and as long as the FTSE keeps trading below the 6,000 points’ resistance we cannot be talking about a major correction rally to bring the index back to its recent 2015 levels. This week I am going to focus my attention in the 5,850 points’ level as I consider it to be the important pivot level for the short term outlook of the index.

At the moment I am looking at the index trying to overcome this level and attempting to mount a correction attempt towards the 6,000 points’ highs. I don’t expect too much volatility this week so if the FTSE manages to remain above this key pivot level then I will look to hunt some short-term profits towards the 6,000 points’ resistance. On the opposite scenario, a failure to remain above the 5,850 points’ pivot will inevitably drive the FTSE back down to its 5,750 points’ lows.

If you want daily analysis and trade suggestions on the FTSE 100 and the Euro, the Pound and Gold I am recommending my NewsletterPro – Forex Opportunities report that has an impressive past performance and is still available at a reduced price until the end of the year. You can find more information on NewsletterPro – Forex Opportunities by clicking on this link.

alpesh

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