The Gold roller coaster ride continues and Gold has now sold off from its high on August 28th of $1434 per ounce, down to $1304.60 on Friday Sept 13^th. Evidently Gold didn’t like Friday the 13^th! How are investors supposed to make profits in these volatile markets when Gold drops over $130 per ounce or almost 10% in about two weeks, ouch! The answer is embracing the volatility and learning to trade the markets as we discuss every week in our market analysis.

So is Gold Finished Rallying? This week’s chart looks familiar as it is the same chart we shared last week however the price of Gold has dropped and has now entered one of our Bear Trap areas. We’ve discussed Trap areas many times but just to make sure everyone understands this important concept we’ll describe a Bear Trap area again. This is an area where price breaks below a previous low aka support. When price breaks lower than this support area buyers who entered higher up “paid top dollar” finally panic out of their position due to experiencing a large loss. These areas have a high probability of selling exhaustion due to everyone who wants or needs to sell doing so leaving more buyers than sellers. This imbalance of buyers outnumbering sellers will cause price to rise again just as the majority of investors/traders who paid top dollar panic sell out of their positions.

That nice shiny precious metal is starting to get some attention lately. That is of course after two years of negative attention, as Gold’s price per ounce corrected from an all time high of $1923.70 down to $1179.40 on June 28th. If you were not watching the charts for the perfect buying opportunity on June 28th, is it too late to join the party? Let’s take a look at the charts below and see if there is another bus en route to take us on a ride to profits with Gold.

The top chart is a larger time frame weekly chart of Gold. After Gold’s peak in 2011 it then had a 50%+ correction to a low of $1179 on June 28th 2013. This area also coincided with a break below the April 2013 lows which was a Bear Trap area. As we have discussed before a Bear Trap area is where late buyers who bought much higher finally throw in the towel and panic out of their position. This creates an area where sellers finally outnumber buyers and buyers drive prices higher.

Often traders and investors are confused by the noise and day to day news that have an effect on the financial markets. One expert says to buy, one says to sell, an hour or two of watching the financial networks will leave ones head spinning with confusion. A simple method used by professionals is being aware of larger time frames and using them for trading. A monthly chart is not going to be a benefit for a scalper that holds trades for seconds but the majority of traders and investors hold their positions for weeks, months and even years. For this group of traders watching weekly and monthly charts are very important to have a clear view of the big picture.

Below is a monthly and weekly chart of the exchange traded funds for the four major stock indexes. In the last couple weeks analysis articles we've pointed out a bearish pattern named "Three Inside Down" pattern and warned of potential selling to come. We also mentioned that with this weekly pattern the markets could chop sideways and even rally to the highs of the pattern, yet the pattern and potential of more market selling would still be intact. Now looking at the markets, every index but the Dow Jones bounced slightly and then resumed selling off. By keeping an eye on weekly charts the markets warned traders that were listening. The majority of traders who are focused only on smaller timeframes didn’t see this selling coming as clearly as those who took a step back using larger time frames for trading. How far will the markets sell to? We don’t have a crystal ball but the Dow Jones does have a potential bear trap area a little lower, as displayed on the chart. This could be an area exhausting all the sellers leading to a bounce.

We have discussed in our market analysis updates since mid July about being bullish of US Stocks. The markets were charging higher but on Aug 5^th we mentioned needing to be able to adapt to “what the markets are telling us because things can turn on a dime”, quoted from August 5th’s analysis titled “Is it Time to Buy Stocks?”. The Dow Jones has since dropped 778 points from the highs earlier in the month to the lows on Aug 21^st. In this week’s analysis we’re going to discuss determining your risk in a trade BEFORE an entry. Professional traders always minimize losses and manage their risk following rules which allows living to fight another day. Professional’s do not “hope & pray” the market goes in a direction and they are not too proud to take their lumps and move on to the next trade. On to our chart!

On August 5^th’s analysis we discussed that the Stock Market is in a potential Bull Trap, an area that is sucking in a lot of buyers and eventually the sellers potentially can outnumber the buyers leading to a market correction. Many market participants are not aware of these trap areas and bought the market top. These “last to the party” buyers now have had to painfully experience a 778 Dow point drop, ouch! So at what point should they take their losses and realize they entered the market at a bad spot? Now after a 778 point loss, 2000 points lower, 3000? The chart below shows weekly bars/candles of all the stock index exchange traded funds and shows a pattern called a Three Inside Down pattern on three of the four Indexes. This is considered Bearish/weak Price Action that Institutional money is well aware of and could lead to more selling. The selling could last for a week, could lead to a 50% market crash, and of course the markets could also break above these patterns negating them proving the market wants to go higher. Whenever a trader or investor enters a position we must realize how important determining the risk in a trade is before our entry, otherwise a small loss can grow to a large loss! The chart on the very bottom is the same chart of the Dow Jones scrunched up to show data dating back to the year 2000 displaying the extent of the rally and how much room below there is for a potential correction. Does the chart’s recent Bearish price pattern mean that markets are going to fall off a cliff immediately? Not necessarily, these bars/candles represent a week per bar so it’s possible and normal for the market to chop sideways and even rally for a couple weeks to the recent August highs. Last weeks bounce on every index except the Dow is a perfect example of this bounce. For any late to the party buyers out there, now is the time to determine your risk!

In today's trading environment we are seeing a mass of new traders around the world who are turning to trading as a get rich quick scenario. Some may be trading because they lost a job and some because they heard from a marketing guru, they could make 250k their first year. Statistics show that over 90% of these unfortunate traders are going to lose their money in the financial markets because they are not getting the proper education. What is the main reason for their losses, Manipulation!

Market Manipulation is an attempt to create misleading appearances in the financial markets. This leads to massive money for those who understand it and massive losses for those who don't. Looking at the last two months of trading is a great example of how the financial markets can be manipulated.

The key to success in all areas of life is to have an edge and the financial markets are no exception. Being faster, wiser, or wealthier never hurts when achieving goals. Whether you are a long term investor, short term swing trader, or intraday trader, having an edge will put you ahead of the crowd. Understanding the psychology of markets and knowing how to trade bull and bear traps is something that few understand which leads to a huge edge for those that do.

Below is a chart of the Dow Jones Futures contract, open almost 24 hours of the day. Each red or green bar represents a 15 minute period. On the very left is 9:30PM EST Thursday August 8^th, and on the very right is Fridays August 9^th’s close at 5PM. On the top of the chart is a red shaded rectangle starting about 10:30PM Thursday night extending to the right of the chart, this is known as a Bull Trap. A Bull Trap is an area where traders buy the market when it moves higher than a previous high causing an abundance of buy orders, but in the process this leaves no buyers remaining to continue the market rally. We then can determine that if there are no more buyers, the sellers now outnumber the buyers. Just when the markets were taking off, this Bull Trap crashed the party at 9:45AM as the chart shows, which lead to a 167 point drop. What a bad day for those participants who don’t understand market psychology!

The water sure feels warm and tempting to get in! The media is bullish and the Federal Reserve has repeated they are continuing their Quantitative Easing buying $85 billion per month of bonds and will keep its Federal Funds Rate close to zero until the unemployment rate falls to 6.5%. So is it time to buy Stocks? The last few weeks we wrote about about a high probability buy entry into the markets and they have rallied higher since. In these markets things change fast and we have to stay tuned in to what the markets are telling us because things can turn on a dime. Let’s take a look at the chart below for clues.

On the top of the chart is the Dow Jones Industrial Average going back to 1990, each bar representing one month. In 2007 (shown in yellow) the markets rallied past the 2000 highs into what is called a Bull Trap. This is a place that everyone who wants to buy has already bought leaving more sellers than buyers. This turns a bull market into a market correction just when everyone was starting to have fun! The 7500+ point correction occurred from 2007 to 2009 shown in pink. Next the markets probed lower than the 2002 lows into what is called a Bear Trap. A Bear Trap is an area where everyone who wants to sell has already sold leaving more buyers than sellers. This turns a bear market into a rallying market just when everyone upped their anti depressant dosage and panic sold! Since the bottom in 2009 the markets have rallied 9000+ points (shown in orange) and now are entering another potential Bull Trap area as the markets break above the 2007 highs (shown in white). So is it time to buy Stocks? The markets are known to throw us surprises and could melt higher without a correction but to keep the probabilities in our favor we wait for high probability areas to enter and could care less if we miss parts of low probability moves. This is not a time to get excited to enter the stock market, especially if a person has not participated in any of the 9000+ point rally from 2009!

Figuring out which way financial markets will possibly travel can seem like an overwhelming task. Anyone that watches the major financial channels knows that after a couple hours one’s head is left spinning with different recommendations. These analysts and portfolio managers on TV are supposed to be professionals so how can all their advice contradict each other and how do we avoid the confusion? There are a variety of ways, first is to stop listening to the “professionals” on TV for advice. Another tool we need to be familiar with is using multiple sectors to determine market direction.

The below chart picture shows six different markets, on top is the popular Dow Jones Industrial Average. Below this market is the Dow Jones Transportation Index, often looked at as a barometer of the markets. Dow theorists like to make sure the Dow Transports are confirming other market moves, such as the Dow Jones. Also notice the recent evening star bullish reversal pattern circled in yellow on the Dow Transports, again telling us that the Dow Transports currently want higher. Finally below are sector ETF symbols, “exchange traded funds”, all crucial to giving hints to market direction. As the chart shows, the Financial, Retail, and the Consumer Discretionary Spending Sector all have broken above their May highs, this is a bullish sign for the health of the markets. On the other hand, Consumer Staples, “known as a sector that is used to shift mutual fund portfolios into protecting from upcoming corrections”, has not broken out of May highs. This can be viewed as a sign that institutional money is not worried about a market correction and is keeping their foot on the gas with portfolios heavily in the higher risk sectors.

Often the financial markets are shouting out to us long before the public is listening. Everyone remembers how annoying it was to pay $4 + per gallon for gasoline, and we all remember terms such as US Credit Rating Downgrade and the Fiscal Cliff. During these times everyone perks up their attention, however these are not the only times financial markets speak. By keeping track of the markets and knowing how to use chart patterns, we can hear the news before it becomes news. Below is a chart displaying the prices of Crude Oil and RBOB Gasoline, symbols $CL_F and $XRB_F. For those not up to speed on their Gasoline, RBOB is the Gasoline contract traded on the New York Mercantile Exchange. Let’s dig into this chart and see what it’s telling us!

We can see the all time high price for a barrel of Crude Oil was $147.27 in 2008. After its peak Crude Oil plunged along with the economy, and since 2009 has slowly been trending higher. The spikes and dips in the price of Crude Oil have left a triangle looking shape and every time price has spiked up, it failed and fell lower. Recently the price has had the strength to push up through the triangle and because of this displayed strength; Crude Oil has a high probability of continuing higher. This Symmetrical Triangle chart pattern is basically a battle between buyers and sellers building energy as the price range becomes smaller, coiling like a spring. Eventually one group will overcome the other releasing this energy, such as in this case where buyers overcame sellers.

The Dow Jones Industrial Futures contract has been in an extensive rally since Feb 6th 2009 with several major corrections along the way. These corrections have given the markets more stability in the move up with more willing buyers and less willing sellers. As of today July 18th 2013 we continue to form new structure highs which leads the mass majority of the public to believe there is nowhere to go but up. That could not be further from the truth, in fact the most basic part of our trading is to know when to stop buying and start selling or vise versa. To do this we must know how to anticipate upcoming directional price moves (projections) on all markets including the dow jones futures.

Click images below for the following details:

Have you ever missed a trade and asked yourself what to do now?

The rally from June 24^th lows has been a great trade for those who got on board a swing trade, yet frustrating for those who threw the towel in near the lows or worse yet added short positions! $SPX & $DJIA “S&P 500 and Dow Jones Industrial Average” have rallied up to just below their November 2012 upward trend Lines, $COMPQ & $RUTX “Nasdaq & Russell 2k” have rallied past their May 2013 highs. So what is a trader or investor to do now?

5 tips for building the best day trading strategy

When you are involved in buying and selling futures, forex or stocks every day (known as day trading) you need to develop your own winning day trading strategy. The best day trading strategy is one that helps you achieve your goals of making a profit from short term and long term transactions. The strategy that works well for another person may not work for you because of the differences in the types of assets and personality involved. The goal is maintain a steady growth of income and wealth through a methodical approach that is repeatable.

Trading futures can be a great way to generate short term income or long term wealth, so what is a futures contract? This is a contract between two separate parties to either buy or sell a particular asset at a specified price in the future which is agreed upon today. There are many different types of assets that futures contracts are applied to including currency, commodities, indices, individual stocks and much more.

You may ask yourself, how can a futures contract benefit me if I want to make money today? This is where anticipation comes in, with the ability to anticipate the potential moves in a market you can speculate the future cost and purchase today at a lesser cost or sell today at a more expensive cost. This is very similar to most other asset classes such as equities, forex etc.... One of the major differences with futures is that the contract in which you purchase or sell will at one point expire; this is known as the "contract expiration" date. As a contract expires, you may rollover into the same asset with a "future" expiration date. When this takes place you are forced to accept your gain/loss or the asset itself according to the exact price you purchased in relation to the current price. Take for example if you purchased a futures contract at 1000 with the anticipation it will go higher, then at expiration if you have not sold or closed the contract out you must take possession of the cattle you purchased in the contract at the agreed upon price (if current price is 1100, you pay only the 1000). Don't let that scare you; it is not required to let the contract expire. In fact it is quite the opposite! You can exit your position at anytime even if it is within minutes!

Traders

Join us for a live event on May 23rd  2013 at 4:30pm EST.

To generate your own unique NinjaTrader Machine ID you will want to use the 3rd Party Licensing feature located in your ninjatrader platform. This can be achieved in just a few steps. Creating your own unique machine id is not necesarry but is recommended when you are licending 3rd party software because certain license keys may be duplicated without knowledge of this. 

Follow the steps below to generate your unique NinjaTrader Machine ID:

Below are the specifications for many common futures contracts including ticker symbol, exchange traded on, min tick, tick value. It is very important to know a market before trading it. The information below will help to understand your risk in each market. All information is manually entered and may not be 100% accurate.

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Keeping a trade journal is one of the most important factors of a successful trading career whether it is futures, forex or stocks; you can download an example journal for your trading statistics below free. I know that many investors says "you should always keep a trade journal" and I also know this is the last thing that most traders want to spend their time doing! It just seems like one of those things that is a waste of time in the beginning stages because it is very difficult to ever imagine looking back at something that occured a year ago. However that is exactly what should be done!

Trade Journal Statistics

Now I'll tell you why keeping a trading journal can help you in your path to success. Every trade placed is a new statistic that makes up the entirety of your trading portfolio. Understanding these statistics can save you from the downfall of a potential career path. Some of the details that we gain are as follows:

When looking for the best trading strategy for your futures and forex trading, look for simplicity. The financial markets give many technical indicators for people to use to determine upcoming moves which can be implemented into any trading strategy. The issue is complexity which causes confusion as well as emotional hesitation to place a trade. Think of the futures and forex markets as an indicator in itself, so if you are already using an indicator why use many more to confirm what you are already being told via price action. You may ask how is price action an indicator; it is simply indicating what has happened in the past so that you can place a defined value on the chosen futures or forex market. Therefor price action is indicative of historical psychology of traders all around the world. 

To find the best trading strategy you will want to ask youself the most basic of questions to determine if the strategy in question is capable of measuring the true value of an instrument or if it is using lagging indicators to be told the current direction of price.....Let me explain....

We have been working diligently on the new Supply and Demand Online Trading Course which will be available in the next month. This training course will be packed with many videos, tutorials, step by step guides and even quiz's to see how much you have learned throughout the process and to be sure to retain all of the informaiton. This trading course teaches how to trade institutional order flow and is specific so you will not be wasting valueable time learning about multiple trading strategies that will not benefit your trading.

Taking a trading course is a vital part of a successful traders path to their future and it is the goal to help each of you reach your financial freedom. I am personally looking forward to the release of this online trading course and will announce it in the coming weeks.