Morning Call

Trading Tips in this Volatile Market….

 No matter what the trading  environment that you are in, all good traders know that the key to staying in the  game is maintaining a good risk & money management strategy. While most traders will simply define risk management as “loss control”, there is really more to it. Risk management should be the constant modulation of risk exposure to a constantly changing market. What is this exactly?

Most traders will set their entire risk management strategy to setting and adhering to “stop losses.” But this falls far short of what risk management really is. Risk management strategy just using simple stop losses would be equivalent to saying “I am safe in my car because I have brakes.” Needless to say, the “brakes” are only part of an entire system of managing risk in a constantly moving environment such as street traffic. The markets are similar to the streets. There are far more actions we can take to minimize risk besides the brakes: there is steering, controlling the throttle, the path you take, “your trip preparation,” mapping your route, the times you drive, the amount of driving you do, not driving while “under the influence,” there are so many factors that affect risk levels, that we cannot possibly reduce the entire risk control strategy down to “brakes,” or in the case of trading, “stop losses.”

How we make and lose money is the end result of our interaction with the market. If we do not interact, we neither win nor lose. If we interact too much or too little, we assume higher levels of risk. Risk management should be the constant “adjustment” of our risk exposure based on market conditions and our very own performance.

How can you modulate your risk exposure? There are 3 primary ways:

* SIZE: How large or small our positions are, based on our account values. The more we expose our account, the “larger” the exposure.
* FREQUENCY: How often we are in-and-out of the market. The more frequent we trade, the more we are exposed to the markets motions over time, the more risk we assume. Also, commission costs become a factor that significantly affects risk levels as we increase frequency.

* DURATION: The longer we are in each trade, the more opportunity the market has to travel, the higher our risks will be.

To properly modulate your risk you have to assess and adjust all three areas of exposure - size, frequency and duration. As you increase one, you must compensate by lowering another.

The biggest single error most traders commit is to place too much of an emphasis on one area of risk exposure while ignoring the other areas. In the end, by ignoring some of the other exposure areas, a trader is left watching his trading account dwindle in size as the losses mount.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

DOW Directions 01-29-08 (Tuesday): A Daily Technical Analytical View of Stocks, Furtures, Eminis and Forex for online and day traders.

DIA (Dow ETF): Market jumps +176.72 as volatility continues.

Monday’s action saw the DJIA climb up +176.72.   The DOW continues to swing wildly on a day to day basis.  Friday’s big drop was matched by Monday’s large gain.  Volatility continues to be the outstanding feature of this market.  Last Friday, the market attempted to continue its rally and was met with resistance when the market opened above the downtrending exponential moving average (T8).  Monday, the market opened below the T8 and closed above the T8 (our exponetial moving average).

The StoRSI, our momentum oscillator, has penetrated its trigger level of +90 and is now overbought by our objective standards.   Near term appreciation could be difficult.  The weekly momentum is a completely different story. The weekly StoRSI is bottoming and this is a very positive sign for the market. We always suggest and encourage traders to look at and analyze the weekly charts. For the moment, comparing the daily and weekly charts leads to a somewhat confusing picture: expected weakness in the daily charts, but expected appreciation in the broader, weekly time frames.

Last Friday, the market opened above the downsloping T8 and we sold the market based on those circumstances.  Tuesday’s opening could easily be higher than the T8 and we will be pursuing the same strategy: shorting the DIA if it opens above the downsloping T8.

Monday’s candle was a large, white candle of little or no consequence.  

Please keep and mind and read the following thoughts on volatility. We have been preaching about volatility since August and we don’t believe that things will calm down for many, many months.

***Volatility Alert:

During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. The current volatility cycle has just started its volatile period. We feel this is the early stages of volatility and we continue to believe it is here to stay.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Engergy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

 

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DOW Directions 01-07-08 (Monday): A Daily Technical Analytical View of Stocks, Furtures, Eminis and Forex for online and day traders.

DIA (Dow ETF): A gap down turns into a freefall for the DOW.

The DOW was down -256.54 points on Friday.  After a day where the markets paused to catch their breath, on Thursday, the markets gapped lower on Friday’s opening and just kept falling throughout Friday’s trading session. 

The StoRSI, our momentum oscillator, closed under it’s trigger level (+10) at +3.28 and is now at it’s lowest level in three months.  This low reading usually signals an end to the downside momentum.  However, in extremely weak markets, the StoRSI can stay under +10 for extended periods.  Price should rally from this area, even if it a feeble attempt to rally, due to the oversold condition of the market. 

The T8 which was flat for a while is now accelerating to the downside. There is plenty of room between price and the downtrending T8. The market could easily rally back to the T8 if the current oversold condition is exhausted. The T8 is our preferred exponential moving average and it dictates our thoughts on the direction of the trend. Of course, the trend in the stock indices is currently down.

The candlestick formation posted on Friday was of no importance, but a big black-bodied candle is never a welcome site in an issue that we would like see moving up.   Until we see a favorable candlestick formation, we caution traders not to consider long positions.

During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. The current volatility cycle has just started its volatile period. We feel this is the early stages of volatility and we continue to believe it is here to stay.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Engergy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

 

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DOW Directions 12-26-07 (Wednesday): A Daily Technical Analytical View of Stocks, Furtures, Eminis and Forex for online and day traders.

DIA (Dow ETF): A new leg up or approaching oversold?

The DOW continued up on Monday and closed higher close for the third consecutive day. The market closed up  +98.68 points on the day. After being supported, early last week, the DOW and the other stock indices have bounced and are now at or near resistance.  

The StoRSI, our momentum oscillator, is now approaching its upper trigger level.  As soon as the StoRSI turned up, the market rallied for three days.  If we only use the StoRSI as a guide, the market could rally for the rest of the week as the momentum oscillator moves above its upper trigger level.    Usually, issues have positive sessions as the StoRSI continues on its path to reach the upper trigger level.  We would suggest short sales on retracements to the T8.

The candle formations of the last few days give no clues to future direction.  If the momentum reaches an overbought situation in the next few days, we will be looking for a significant candle formation, at the top of this current run.

***Volatility Alert:

During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. The current volatility cycle has just started its volatile period. We feel this is the early stages of volatility and we continue to believe it is here to stay.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Engergy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

 

 DIA: Play Now | Play in Popup | Download (596)

All trading systems have different parameters and conditions that are required prior to executing the trade. You will not find a perfect condition for a trade, it would be nice if we could! You will have more success with the trade depending on the number of conditions that are in alignment. The trader will have to a handle on executing trades that do not have perfect conditions. Trading is an art not a science. You need to recognize when the conditions arise in which a higher percentage of conditions are met and you are able to execute the trade. Yes there is some fear that creeps in for most people when they have to execute on a less than perfect conditions. Knowing the trade’s odds can help a trader evaluate risk and adjust position accordingly. If only 80% of conditions in the trading system exist, the trade has less odds of success than a trade that has 100% of conditions and should be traded differently.

If all trading conditions exist, if all indicators are lined up, the trade has certain odds of success. If not all indicators are lined up correctly, the trade has lower odds of success. Below a certain level of odds, the trade should not be taken.

Thinking in Odds

Most traders have serious problems thinking in odds because it is against our nature to take on a position without being 100% sure that it will be a success. Losing hurts, it is painful, taking a position knowing that there is a chance of loss is usually avoided. Traders want to “know” what is going to happen and therefore look for the black and white in trading. Black and white do not exist in trading.A trade can be right and still lose. All indicators can be aligned and the trade can still lose. Even if the system is 99% accurate, there is still a chance that the trade will be a loss. Most traders are unable to accept this and it causes frustration. By learning to think in odds, a trader can both vary their trading according to odds of success and accept losing trades a lot easier.Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Using and Understanding Trailing Stops

Once you get in a trade you hope the price immediately starts moving in your favor.  If so, you need to execute your plan, and if this includes trailing stops, then put your plan into action.  there are a couple of ways to do this.  With online trading it is easy to use a trailing stop that is continually modified according to the price action.  Lets say your trading plan calls for a $.50 trailing stop.  When you enter the order you will initiate the trailing stop which will be $0.50 below the entry price, As the price moves up your trailing stop will also move up.  In the purest sense, you would just leave this stop in until you get stopped out.

If your trading plan includes moving a stop up to a breakeven level after a certain profit level, then you would put in an initial stop and move it up manually following the price action.  You will never be hurt taking a profit or breaking even.  You have to be careful since taking small profits will not make up for the losing trades with larger stop losses.  If you place your stops too tight then you will be stopped out will very little profit.  The overall  game plan is to cut your losses and let your profits run.

If I am day trading in my online account, one of my plans is to lock in a breakeven level as quick as possible and then watch and trade off the candle formations in different short time frames like the five, ten, 30 and 69  minute time frames.  If I see that the trend is breaking down I will lock in a profit or smaller loss.
There are many ways to use trailing stops and there are ways to reduce risk with multiple contracts and using trailing stops.  Teach Talk Trade will educate you in these type of trading methods and philosophies.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call (we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues with analysis)  &  The Mechanical Monkey  where we discuss our mechanical trades & give you entries and exits.

T8 Tactics 12-06-07 (Thursday): A periodic look at Tim Tillson’s T8 and how to apply it to the markets for fun and profit.

The T8 is the most useful tool I’ve stumbled across during the last ten years.  Since January of ‘98, when Tillson first published, the T8’s remain under the technical radar.  I’ve collected many helpful formulae during my 35 years in the business.  The T8 is the most fascinating indicator I’ve have encountered.   The T8 is an exponential moving average that defines trend in many of our mechanical trading approaches.  After many years of testing, the T8 shines in two areas:  a. as a trend identifier  b. as suport/resistance.  This is a vast improvement over the hundreds of moving averages I have analyzed over the years.  Two great features in one solid indicator.   

The direction of the T8 is obvious on the March Copper chart.  The T8 is the maroon line.  The T8 seldom waffles.  If the trend turns down, count on a extended run to the downside.  The T8 is sensitive  to important directional changes.  As you can see on the chart, copper and the T8 turned down in tandem.  The timely turn at the top of the Copper chart is typical of its interaction with price.  The larger red arrows, on the chart, are days when price opened above the T8.  The smaller red arrows are retracements to the T8 intraday.  All of these red arrows were strong selling opportunities.  Since the T8 has turned up in the last five days, until further notice, we will be only buying copper (HGH) on retracements to the T8 or openings below the T8.

 Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Engergy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

ETF Directions 12-05-07 (Wednesday): A Technical Analytical View of Exchange Traded Funds.

SMH (Semiconductor ETF): The T8 turns up and the Semi’s could be a bargain.

The ETF representing the semiconductors (SMH) is in position to move higher.  Tuesday’s close of 32.16 was just pennies above the positive trending T8 (support).    The Chande Momentum Oscillator, our preferred momentum oscillator for the SMH, has bottomed out at -100.  Two days at this negative reading can lead to strong rallies.   

The direction of the T8, our exponential moving average and trend definer, had turned positive during the past two days. The trend had been down since 10/10/07 prior to the recent upturn.  This positive turn in trend is a welcome sight for long term players who know how exciting this sector can be. We would like to see the market to drift down to the T8, at that point, but first we expect the market to rally. Retracements to a positive T8 are almost always buying opportunities.

Tuesday’s candle was a “reverse hammer”. “Reverse hammers” are signs of market exhausting itself on the downside.  Look for movement to the upside in the near future and buy retracements to the T8 when given the opportunity.

***Volatility Alert:
During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. This volatility cycle is in its early stages and we continue to believe it is here to stay.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Engergy issues ) & The Mechanical Monkey where we discuss our mechanical trades.