InvestMacro FX

NZD/USD

Weekly graph: http://www.real-forex.com/charts-daily/181010/NZD_WEEKLY_181010.JPG

One Hour graph: http://www.real-forex.com/charts-daily/181010/NZD_1H_181010.JPG

The pair reached an important resistance of 0.7642 after several weeks of a clear uptrend. Once the resistance reached, the pair started to decrease, creating an opportunity for a “Short” transaction.

Potential trade

Our suggestion before entering any transaction is to identify a decreasing configuration on one hour graph. Our analyses suggest the creation of such a configuration once the support level of 0.7534 will be crossed. The best time to order the transaction might be after the identification. Following our analysts’ transaction:

• “Limit” order on “Short” position 10 pips below the mentioned support – 0.7524.
• “Stop Loss” order on the last high occurred – 0.7584
• First destination suggested for a “Take Profit”: 0.7479

According to our analyses, the probability for a long-lasting “Short” is quite high. Anyway, we would limit the profit to the closest support in order to avoid bad surprises.

GBP/USD

Daily graph: http://www.real-forex.com/charts-daily/181010/GBP_DAILY_181010.JPG

One Hour graph: http://www.real-forex.com/charts-daily/181010/GBP_1H_181010.JPG

A second test of the resistance level of 1.6001 happened during the last trading session. This second test confirmed the strength of this resistance, suggesting high probability for a reversing trend. On daily graph, a falling star (10 pips breach of the last low occurred) should confirm the reversal.

We are anticipating a small correction of the trend before the real decrease will start. Therefore, we suggest waiting for the end of the correction, identifying the decreasing configuration on the One Hour graph, and entering the transaction you might want.

Have a profitable day!

Real forex team

By Justin Thomas

Banks, Non-Bank financial institutions and online service providers compete on the global market for money transfers, but companies that are more innovative lead the pack for such services.

Many people believe there are a mere three to four ways to make a currency transfer abroad. True, but if said a decade ago. Ever since, there emerged many online money transfer and foreign exchange companies, which grew as reliable and flexible as to broaden the array of methods and, thus, form a very competitive global market for this type of service. Therefore, research is essential before opting for a method. To start out, here are some of the most popular and convenient ways to send money abroad.

Sending a cheque to a beneficiary is one of the oldest currency transfer methods. While safe, it could be very frustrating due to its time-consuming character. Cheques could travel up to 10 days to reach their destination and it takes some more time to clear the check. Furthermore, they are subject to sizable bank fees.

The wire transfer appears to be a more convenient way to send money abroad, plus there is no requirement for you to be a client of a bank and you can send money in the local currency, which will be automatically converted into the beneficiary”??s home currency or the currency of his/her bank account. Banks usually charge a hefty $30-40 per wire transfer but at the same time exchange rates are good, which makes this method appropriate for sending sums exceeding $3,000 “?” $4,000.

Some companies offer cash transfers, whereby a person living in a particular country deposits money with an intermediary and the beneficiary physically receives the deposited sum from a location elsewhere in the world. These companies usually charge a fixed fee plus percentage of the overall sum. Be aware that while most of these companies are trustworthy they charge relatively high fees to transfer funds and restrictions on the sums sent apply.

Sending a debit card is a method, under which the beneficiary receives a debit card and then he/she can receive money on it. Several non-bank companies offer such worldwide debit cards but they also charge relatively high fees on ATM money withdrawals and can freeze the card if it has zero balance for a certain time period.

Another fast and convenient way to send currency abroad is via one of the numerous online money transfer services. Usually, you must have a bank account in a local bank in order to withdraw money from your online account. These services also perform currency exchange operations, but one should bear in mind that rates of different companies vary a lot and usually the exchange rate is about 2.5% lower than the current market rate.

Sometimes it is hard to find your way and choose the best service provider and the best method to make a currency transfer abroad. Try to conduct thorough research of the service provider and compare different methods before choosing the most appropriate option, which would guarantee a speedy service and the lowest possible costs. You should also keep in mind that you have to possess the correct contact details of the beneficiary i.e. full name and address, bank account number or IBAN, SWIFT code of the bank, etc.

By Justin Thomas

The recipient will be subject to a Currency Transaction Report if he/she is trying to withdraw more than $10,000 in cash

Most developed countries have introduced legislation which poses restrictions on cash deposits or withdrawals or, alternatively, have subject these transactions to some kind of control. In the United States, if a person is trying to conduct such an operation with a financial institution and the sum is larger than $10,000, then the financial institution is obliged by law to report it and to file a Currency Transaction Report (CTR) with the Internal Revenue Service (IRS).

One has to bear in mind that the federal law applies to each deposit, withdrawal, exchange of currency, or other payment or transfer by, through, or to the financial institution, involved in a currency transaction worth more than $10,000. However, there are exceptions which apply to some groups called “exempt persons”. These include: any bank in the United States; departments or agencies that fall under federal, state or local governments; any corporation whose stock is traded on the NYSE, Nasdaq and the American Stock Exchange (excluding stocks listed on the Emerging Company Marketplace and under the Nasdaq Small-Cap Issues heading).

Thus, if you intend to make a currency transfer to the U.S. and your relative or spouse needs to withdraw the money to pay for something in cash, he/she will be subject to CTR. The same rule applies to attempts to conduct a multiple cash transaction exceeding a daily cap of $10,000 (a process called “structuring”). Such structuring aimed at evading CTR reporting is prohibited by the law. Making a cash transaction in excess of $10,000 is not a violation of the law itself. Rather, the person who withdraws money will have to provide a valid ID regardless of his relations with the financial institution, i.e. even if he/she does not have an account in it.

Few are likely to regularly make currency transfers for such a large sum, but if you are among those few, then you must be informed about the existence of SAR. You may conduct multiple currency transfers to your spouse in the U.S. for sums close to but under the $10,000 threshold and he/she can cash them in without any problems. However, these accounts and transactions will be subject to close monitoring by tellers and banks and at some stage they could decide to file a Suspicious Activity Report (SAR).

So if you plan to send a currency transfer exceeding that sum to the United States, inform the recipient about these restrictions because a bank teller is not obliged to tell the customer that a CTR or SAR will be filed unless the client asks the question himself. The same or similar legislation is in force in all member states of the European Union and most European countries. It is important to know that in most cases it is not unlawful to conduct such transactions but a report will be filed with the respective government body.

By Christopher Seiter

With regards to purchasing gold people are often baffled. There are lots of factors that go straight into predicting each time a stock will move way up or alternatively go down. Seeing as how so many people are confused about how to properly invest in gold I decided to write an article on the fundamental principles of gold investing.

Gold is definitely referred to as the anti-dollar. What do I mean when I say that? Easy, the amount of which gold is worth tends to elevate when the United States dollar falls. Since 2001, the U.S. dollar has long been gradually falling in overall value while the price tag of gold is actually progressively improving.

Gold Holds

Throughout time there has been one truth with regards to gold, the provision of gold is limited, which assists it in its quest to hold its value. To state my speculations in simpler terms, the total that gold seemed to be worth back in medieval times will be what it still worth today. Interesting huh?

Golds Alarm

Gold acts as an alarm from a sudden rise in inflation. So, if you get a tip or sudden inkling that we will possibly be experiencing a sudden blow up of inflation then you might like to think about increasing your stock portfolio by adding some gold stocks.

ETF’s And Their Impact

Among the most effective options to purchase gold is via an ETF (Exchange-Traded Fund). A fantastic ETF is often compared to a mutual fund that should be bought and sold like an investment. A couple of of the extremely well known ETF’s are StreetTracks Gold Shares and iShares Comex Gold Trust.

Among the finest reasons for trusting an ETF is the fact that the strain to store physical gold is completely off your shoulders and the heavy load is take up by the ETF. It does not take a renegade to know that when you purchase physical gold you take on a significant risk since it has a chance to be taken by a thief or simply misplaced.

ETF’s And Mining Companies

An extra way to pay for gold is by using an ETF that owns gold mining companies or simple rare metal firms. There are several ETF’s that have one goal: To purchase organizations that strictly mine gold.

Gold Coins

One of the more interesting and fascinating ways in which to purchase gold is going to be through a gold coin. You’ll find that people that like to own personal gold coins also additionally invest in gold coins. If you have got the urge to buy gold coins be sure to shop carefully and buy from a trusted gold coin dealer.

Remember:

If you desire to invest in gold do not ever go overboard seeing as the buying price of gold often fluctuates. Follow the basic guidelines stated above and you should have no problem investing in gold.

About the Author

Before you go anywhere now click here to get the latest gold investing stock tips: Gold Miners

By Damon Callaghan – It’s Monday night, 1:29am. The European market is about to close, but the New York market has a long five and a half hours till the 24-hour trading day ends – this is the foreign exchange market. Never in my experience trading currencies, have I spent so long staring at a computer screen, watching a chart tick up and down, trying to understand where the price is going. In fact, I’m not alone – thousands of traders, analysts, academics and businessmen spend hours, days, even weeks, trying to understand certain price movements in the financial markets. Some would even argue that analysing these markets is one of the most complex challenges that one will encounter in their career.

Technical Analysis and Fundamental Analysis

Financial market analysis can be viewed in two segments: technical and fundamental analysis. Most traders and analysts find that they favor one method over the other, however, they usually concur that both are complementary.

Fundamental analysis aims to help traders find the true value of a financial instrument, determine if it is either overbought or oversold and make their trades accordingly. It’s process is to survey the components that affect the supply and demand underlying a financial instrument, in order to define price direction. Fundamental analysts use economic calendars, companies’ accounting data and other information to make sense of price direction.

For example, when the recent mining tax was announced in Australia this year, many resource and mining companies saw its negative implications for net income, causing them to threaten Australia’s economy by potentially moving business operations overseas to avoid the tax. Many fundamental analysts would have shared this same view, bidding down the price over several weeks for many publicly-listed mining companies on the ASX (BHP, ABY, LEG), as the mining tax would have decreased the intrinsic value of the companies’ shares.

However, technical analysis focusses more on understanding market sentiment and its relation to price movements – it addresses the issue that a financial instrument’s price represents much more than it’s intrinsic value. Sometimes, financial instruments don’t move the way they are expected to, given their true value. This is because the market is not always rational – it may take days or weeks for a fundamental price movement to occur.

For example, between 9 and 13 July this year, the AUDUSD currency pair was trading in a tight range. From a fundamental perspective, this is not how the price should have been trading – it was expected that the Australian dollar was going to rise due to a mortgage rate rise favorable to the currency. However, it took four days (this is a long time in foreign exchange), since the rate rise, for the AUD to break out from the range and rise to a nine-week high, which was mainly due to poor US retail sales data.

The role of technical analysis is to gauge price movements like these. Many traders argue that the primary price direction of a financial instrument can usually be determined by fundamental analysis. However, technical analysis is important in understanding price movement – it uses patterns, designs and mathematical methods to make sense of price movement, even when the market isn’t acting rationally.

Dow Theory

While many technical indicators that help traders buy or sell financial instruments deductively exist, it is important to understand that the foundation of technical analysis stems from the basic assumptions of Dow Theory.

Charles Dow was a cofounder of the Dow Jones Average (DJA) and the first editor of the Wall Street Journal. His editorials contained a plethora of ideas and principles that he believed were identifiers of price direction in the DJA as well as individual stocks. These ideas were later collated and interpreted by William Hamilton and Robert Rhea [1] shaping them into what is now know as Dow Theory.

Dow Theory declares that markets have three movements. The first movement is the primary trend – it is identified as the bull (upward) and bear (downward) markets that last for several years. The second movement is the secondary reaction – it is the movement of price in the opposite direction of the primary trend that lasts from three weeks to several months. In other words, it is a noteworthy decline in a bull market or a correction in a bear market. The third movement is the daily fluctuation in price, which rarely affects the first or secondary movements.

A major part of Dow’s analysis involved identifying whether a market was either bullish or bearish and determining when a trend had reversed. A bullish primary trend is illustrated by a chart with higher peaks [2] followed by higher troughs [3] whereas a bearish primary trend is distinguished by lower peaks followed by lower troughs. In most circumstances, the period in a chart between a peak and the following trough in a bullish trend and the period between a trough and the following peak in a bearish trend are secondary reactions. The daily fluctuations are small price movements that meet the supply and demand for stocks in a particular day that do not detract from the main direction of the primary trend.

Dow explained that there are two ways in which a primary trend can reverse. Assuming that the DJA is presently in a bullish primary trend, one signal that might indicate a trend reversal is a large decline that decreases below the previous trough. The other indicator may be the formation of a lower peak after a higher trough, followed by a lower trough. In comparison, a bearish primary trend would reverse either by a large upward correction that increases beyond the previous peak, or a formation of a higher trough after a lower peak, followed by a higher peak.

In Dow’s analysis, he predominately observed price movements in the DJA. However, he later split the DJA into the Industrial and Transport Averages and applied his analysis to both averages. Even though the majority of the application of his ideas was based on stock market averages, many analysts have found that Dow Theory’s assumptions are still very relevant in other financial markets, even when analysing individual instruments.

However, by translating Dow Theory’s principles to other markets, it is important to consider altering the time-based parameters to the relevant market’s time-frame. For example, in the following diagram, I have applied Dow Theory to make sense of EURUSD movements. Since the foreign exchange market is very liquid, a primary movement will usually last for weeks or months instead of years; a secondary reaction lasts for days till weeks at a time; and daily price fluctuations are replaced by hourly exchange rate fluctuations.

Dow Theory explains that three different phases exist within each primary movement. (see the brilliant explanatory diagrams at student 2 trader dot com).

Each of these phases explain the psychology behind price movement within a primary trend – they help to answer the question: why are the prices moving in this direction over this time period? For example, phase one in a bull market implies that traders and investors are reviving their confidence in future business, signaling the transition from bear to bull market. The following table gives a brief description of each of the phases:

An example of these phases is present in the recent price movement of the Dow Jones industrial average. As shown by the following diagram, Phase 3: Distress selling explains the March 2009 low in the bear market, leading to Phase 1: Reviving confidence, shaping a new bull market that has formed from this multi-year low.

Technical Analysis in Practice

However, the formation of a higher trough on 14 June (confirmed by the higher peak on 15 June), was the first indication of a reversal into a bullish primary movement. The EURUSD continued its bullish trend after completing a secondary reaction from 21 June to 3 July.

In this example, the role of technical analysis in trading becomes much clearer. Assuming a trader opens a position to go short [4] EURUSD at 1.2700, the formation of the higher trough on 14 June would be a good indicator to close out his position and take his profits. After this trough is confirmed by the higher peak on 15 June, it may even prompt the trader to open a small long [5] position around the 18 June trough.

Furthermore, even though fundamental analysis may dictate the primary movement in a weekly or monthly chart, in this scenario, it failed to validate the short term price movements that eventually lead the EURUSD pair to trade above the 1.2900 level, emphasizing the importance of technical analysis as a process that can make trading the financial markets profitable. druv4

About the Author

Damon is well known for beginning the first online trading resource for students around the world, aimed to give free education about trading to all his readers. You can find this and more, mind blowing interviews with trading professionals at www.student2trader.com

By Bob Moore

Day and swing traders use Taylor Trading Technique for several favorite trade set-ups. Traders take advantage of positioning their trades in sync with the ‘ebb-and-flow’ of the Markets identified by Taylor Trading Method ‘3-day cycle’.

George Taylor’s Book Method, known as Taylor Trading Technique, captures the inflows and outflows of ‘Smart Money’ in what can be considered a repetitive, 3-day cycle. Simply stated, institutional investors, or ‘Smart Money’, push markets lower to create a buying opportunity and then push markets higher to create a selling opportunity within a 3-day trading cycle.

The Taylor Trading Method ‘3-day cycle’ can be identified as follows:

Buy Day, where the market is driven to a low for a Buy opportunity;

Sell Day, where the market is driven higher for an opportunity to Sell your long position; and

Sell-Short Day, where the market is driven lower after establishing a 3-day cycle high for a Sell-Short opportunity.

Traders take advantage of the 3-day cycle by placing long and short trades in sync with the dynamics of the cycle. The following three favorite trades using Taylor Trading Technique have been tested by time to offer traders superior probability of success.

The first favorite trade using Taylor Trading Technique is placing a long trade at or near the low made on the Buy Day, that is, the ‘Buy Day Low’. A trader will use all of his/her resources to identify the Buy Day Low, because, according to Taylor Trading Rules, there is over an 85% chance the Buy Day Low will be followed 2-days later by a higher market high on the Sell-Short Day, even in a down-trending market. A trader can successfully close higher on the long trade during the Sell Day (second day of 3-day cycle) or wait to close on the Sell-Short Day (third day of 3-day cycle) if markets are in a particularly bullish sentiment.

The second favorite trade using Taylor Trading Technique is placing a long trade on the Sell Day if the Market/trading instrument decline below the previous day’s Buy Day Low. According to Taylor Trading Rules, there is a very good chance of at least rallying back to the Buy Day Low within the 3-day cycle offering an opportunity to successfully close higher on the long trade at least by the Sell-Short Day.

The third favorite trade using Taylor Trading Technique plays the Market/trading instrument for a short trade. According to the ‘3-day cycle’, the Market is driven lower after establishing the high on the Sell-Short Day, that is the ‘Sell-Short Day High’. Therefore, if the Market closes near the Sell-Short Day High, it is possible the Market will gap above the Sell-Short Day High at the open of the Buy Day. According to Taylor Trading Rules, there is a very good chance of at least declining back to the Sell-Short Day High on way to establishing the Buy Day Low offering an opportunity to successfully close on the short trade during the Buy Day.

Of course, a trader should evaluate other underlying dynamics of the Market/trading instrument before considering if a long trade or short trade is warranted. The trader wants to place a trade that has the best chance for success in the shortest period of time. Therefore, it goes to reason that other sentiment indicators should be in align with the decision to trade long or short.

For example, the trader should consider placing the trade-whether long or short-that is in sync with the Market’s/trading instrument’s prevailing short-term trend. If the short-term trend is positive, then the trader should concentrate on those opportunities that favor long trades; if the short-term trend is negative, then the trader should concentrate on opportunities that favor short trades.

In addition, evaluating Elliott Wave patterns of the Market/trading instrument is beneficial in determining the potential for near-term upward or downward momentum. The trader may place more aggressive short trades when the Market/trading instrument is embedded in a downward Elliott Wave pattern, but, on the other-hand, may be more willing to place a more aggressive long trade when the Market/trading instrument is in an upward Elliott Wave pattern.

In any event, a trader can decide to trade long or short within the Taylor Trading Method 3-day cycle by considering the following simple rules:

If the Market/trading instrument is trending upward, then a long trade may more strongly be considered because, with respect to Taylor Trading Method 3-day cycle, higher Sell-Short Day Highs are being made relative to shallower Buy Day Lows.

If the Market/trading instrument is trending downward, then a short trade may more strongly be considered because, with respect to Taylor Trading Method 3-day cycle, lower Buy Day Lows are being made relative to lack-luster Sell-Short Day Highs.

If the Market/trading instrument is trending sideways, then both long and short trades may be considered because, with respect to Taylor Trading Method 3-day cycle, the difference between Buy Day Lows and Sell-Short Day Highs remain relatively constant to each other.

Traders find as much relevance to Mr. Taylor’s ‘Book Method’ in today’s Markets as they did when first introduced in the early 1950’s. Although the speed of trade execution has tremendously increased, the human nature of trading in sync to the prevailing trend has not, and is still the trader’s best attack and defense when trading along-side the ‘Smart Money’.

About the Author

Bob Moore is with Taylor Trading Plus, an international data-exchange trading service using George Taylor’s Book Method, Value Area trading, Elliott Wave analysis, and Short-Term Trend analysis to identify trading entries/exits in select instruments of Futures, ForEx, Commodities, Metals and Oil, ETF’s, and Stocks. For more information pertaining to trading the Taylor Trading Method way, please go to: http://www.taylortradingplus.com.

Sponsored by: Real-Forex
EUR/USD

Daily graph: http://www.real-forex.com/charts-daily/181010W/EUR_DAILY_181010.JPG

On middle –term, the pair is uptrend oriented.

Following the break of last week’s resistance at 1.4031, the pair reached a new important resistance at 1.4170. Last session template may indicate a reversing trend but is not enough to confirm it.

Since this is the first contact between the pair and the resistance, we suggest waiting 2-3 session in order to check whether the pair will base itself on the resistance or not. A too strong resistance should reverse the trend, creating an opportunity for a “Short” transaction.

If you decide to enter the position, we suggest looking for a decreasing configuration on a one hour graph.

Generally speaking, all the pairs having the USD as quote currency stoped their current trend. Anyway, be careful and do not enter any position unless you are sure of the orientation of the pair in question.

GBP/USD

Daily graph: http://www.real-forex.com/charts-daily/181010W/GBP_DAILY_181010.JPG

A second test of the resistance level of 1.6001 happened during the last trading session. This second test confirmed the strength of this resistance, suggesting a reversing trend. On daily graph, a falling star (10 pips breach of the last low occurred) should confirm the reversal.

The probability for a reversal is stronger with this pair as opposed to the EUR/USD since the resistance was tested twice here.

USD/CHF

Daily graph: http://www.real-forex.com/charts-daily/181010W/CHF_WEEKLY_181010.JPG

The current sharp and clear decrease is lasting for already several weeks.

The breach of last week support (0.9636) level put the pair at the lowest rate ever reached; meaning that he probability for the pair to keep its current trend is very high. A small reversal may happen, creating the opportunity for a “Long” but it will be limited to the last high occurred – 0.9636.

Our opinion: We suggest waiting for the end of the correction, and following the current trend by trading “Short”.

USD/JPY

Monthly graph: http://www.real-forex.com/charts-daily/111010W/JPY_MONTHLY_111010.JPG

The current trend is clearly a decreasing one.

A week and a half ago, the pair crossed the support 82.84 and its level is currently the lowest ever reached a long time ago. As we said about the USD/CHF pair, the probability for the pair to continue its decrease is very high.

A “Long” trade is possible but limited to the last high reached, 82.84.

Have a great week!

Real forex team

Sponsored by: Real-Forex

By David Adams

If there were ever a tougher concept to assimilate than this little tidbit, I’d like to know what it would be. Common sense is a fine thing to possess, but it is of very little use when learning to trade ES Emini futures contracts. And here is the rub, the market does not always move in a logical manner.

You tell yourself, “But earnings are up, the market has to go up, too”

Nope.

The market often moves in a manner that is contrary to common sense. Recently, the market has taken a particular liking to rising unemployment numbers. Of course, the traditional logic explains this phenomena by quoting the inverse relationship between unemployment and inflation. But we are plagued by deflation at the present time. Common sense tells us that higher unemployment means less money to spend and lower earnings, and hence, lower stock prices. This has not been the case, though.

In some of my previous articles you may have heard me harp on the addage, “trade the market, not the economy or the news.” Since we are regularly inundated with all sorts of news this feat is easier said than done. My solution is simple, when I trade I do not listen to the radio, watch television or check any of the financial websites. I only trade the chart in front of me and draw my own conclusions from the information I glean from that particular chart.

It is difficult, at best, to “turn you brain off to the world” when you trade, but you must trade only what the market is actually doing. Time and time again the market has befuddled the experts by moving in a manner that is inexplicable. I have heard thousands of traders say they were in the perfect fundamental setup and the market had to do this or that, and it didn’t. Their conclusion is that the market isn’t a reflection of reality, which may or may not be true. But this is true, when trading with actual dollars all that matters is whether you trade is profitable or a loser.

No matter the reason, if you are on the losing side of the trade, “the market was right, and you were wrong.” If you don’t believe me, take a look at your account balance in this situation…it will have less money. What better proof is there?

So, you ask, “you are asking me to through common sense out the window?” And the answer is…kind of. Often times, the market moves in a very orderly and logical manner. Things that ought to happen occur right on cue. On the other hand, there are countless times the market misbehaves and moves in a direction that is contrary to common sense logic and you will have to learn to watch your indicators and price action to pick up on these illogical moves before they become a disaster. As I have said, it is easier said than done, yet it is one of the most important concepts to understanding trading.

The Market is always right.

About the Author

I write mainly about financial topics, specifically daytrading the ES and YM emini contract, and many of my more advanced techniques can be found at my blog, The Fractal Futures Trader.

I also write an ongoing commentary, which is a bit more opinionated, at The Fractal Traders Commentary

By David Adams

If you want to stir up a lively chat room, talk about fibonacci retracements, or Gann Lines or momentum oscillators. If you want to bring the conversation to complete silence bring up the psychology of trading.

Perhaps the term “psychology” itself is the culprit, as it evokes thoughts of mental insufficiency or the inference that somehow you, the trader, may be having thoughts that are incongruent with trading reality. Yet trading psychology may be the most important, and least discussed aspect of trading. The way you think directly impacts the effectiveness of your trading profitability, and I am not referring to technical knowledge.

Whether we, as traders, like to acknowledge the emotional side of our trading is a question few care to deal with in a coherent scheme. Of course, most traders will claim they remove their emotions in trading, and to a degree this must be true. I suppose the very best traders will claim they have very little emotional involvement in their trade selection and contract size management. That is the way it ought to be…trade like a robot.

Unfortunately we, as human beings, are not wired to ignore our emotions. Few can deny the satisfaction of a string of three or four highly profitable trades. Studies from several sources indicate higher level of endorphin as people successfully trade. Endorphin release causes a sense of euphoria and well being.

As I trader I find myself prone to a bad trade after several very good trades. I think, in my own mind, that I am on a lucky streak, or that I have a particular insight into that days trading action, or some other psychological phenomena which is simply not true. For me, I am more likely to make a bad trade after a succession of good trades. And I am not alone, several studies have verified this trend, this overconfidence that builds with each successive trade. Yet, I usually analyze the bad trade, and can clearly see it was not a good setup, and I was relying on my “winning” intuition when I took the trade…after all, I had been killing the market all day. Why would I fail now?

Books like:

Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading) by Brett N. Steenbarger

Trading for a Living: Psychology, Trading Tactics, Money Management by Dr. Alexander Elder

Essentials of Trading: It’s Not WHAT You Think, It’s HOW You Think by Larry Pesavento and Leslie Jouflas

These titles grace my trading library and I have dog-eared the book by Dr. Alexander Elder. If I find myself relying on emotions and/or emotional attachment to any trade I know it’s time to shut the computer off.

Still, traders really don’t want to discuss the mumbo-jumbo world of psychology and trading, not really. And it might well be the most important aspect of your trading life.

About the Author

David Adams writes mainly about financial topics, specifically daytrading the emini contract, and many of his more technical techniques can be found at his blog, The Fractal Futures Trader.

David Adams encourages all to read the blogs and learn how to trade, as you can add $500-1000 dollars a day to your pocket book. Best of trading to all.

By David Adams

There was a time when you invested your money in Certificates of Deposit at your local bank and left the money there until your retirement. Banks offered safety and a minimal return on investments.

Then, along came mutual funds…

During the go-go 1990s, mutual funds were the rage, and returns of 25% per year were not uncommon. Without any real knowledge of how mutual funds worked, employees plowed billions of dollars into their 401(k) plans and funded those plans with mutual funds. At the time, many funds were springing up and specialized in a variety of investing disciplines. It wasn’t long before funds that specialized in narrowly focused industries were common and many fared very well. Of course, during a spectacular bull run investors became accustomed, if not spoiled, with the fantastic returns they received. Who can forget Peter Lynch and the fantastic returns on the Fidelity Magellan Fund?

Somewhere along the line people forgot that the market does not stay in a perpetual bullish state. In my opinion, most unsuspecting investors can be forgiven for this oversight. Our last bull market was one of the longest in recent history, though it was funded by deficit spending at a national and personal level. Like all good things, it came to an untimely end as in recent years stock prices have skidded and home values have plummeted precipitously.

But a lot of folks stuck with their funds and their 401(k) plans…

The problem with most open ended funds is that they can only buy stocks, and cannot sell short. The end result for the investor is that unless the market goes up he or she does not make money. As I mentioned earlier, many funds evolved with tightly focused investment objectives and if the particular sector in which a given mutual fund was forced to invest did not do well, there was nothing that the fund manager could do besides mitigate the level of overall loss. Investing in perpetually long positions definitely has its disadvantages. Of course, during a recession the market as a whole tends to decline, so it does not particularly matter what investment sector you invested in, the results will be disappointing. This makes investing over the long term, or using the “buy and hold” strategy difficult to implement.

So now the mutual fund industry finds itself in a bit of a quandary. During the rip roaring bull market of the last decade mutual funds were the investment of choice, especially for the uninitiated. Now that the market has cooled off some, which is an understatement, the allure of funds have waned. Worse yet, there are millions of investors with money in their 401(k) plans invested solely in mutual funds. Though we have had a nice run up in the last year, the long-term prospects, at the present, are not so encouraging. Worse yet, many employees jumped out of their funds, especially in 401(k) plans, at or near the bottom of the last market correction. They stand little chance of returning to the original high account balances they once enjoyed. The lesson is a simple one, during bull markets mutual funds are a wonderful investment and very profitable. When the market is correcting, however, funds can be a distinct liability because they are, by law, required to invest in only long positions. If you are holding funds during a market correction your options are very limited; you can stay in the fund or you can opt out. There are no provisions in fund investing that allow you to effectively take advantage of a correcting market.

In my opinion, the recent volatility in the markets negates the old adage, “buy and hold investments.” I suppose over a 50 year time frame this investment strategy may pay dividends, but currently the average holding time in mutual funds is just under three years. Needless to say, a great many people have been burned of late in mutual funds. Absent a rip roaring bull market, the mutual fund industry must develop a mechanism to protect investors in down markets. If not, they risk losing a great number of investors. Already the number of mutual fund investors has declined nearly 40%. The industry needs to become more nimble to survive in volatile market conditions which punish investors severely.

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