TradeJuice.Com Trading Articles Weblog

The notion of a “coming oil shortage” has been around for decades. I remember the lines at the gas pumps in 1973-74 all too clearly, because I had just gotten my driver’s license. The economic wise men of the time made dire predictions. If they had been right, the world’s oil supply would have been long gone by now.

Still, the notion persists as strongly as ever in some quarters. A professor at Princeton published a book in 2002 with “Impending World Oil Shortage” in the title, which was favorably reviewed in all the right places. The price fluctuations over the past year have only fed the beast.

Now, I could give you my opinion of all this, but it’s probably better to stick with the facts, to wit: There is no shortage of oil. There will be no shortage of oil. Not now, not next year, not in 50 or 100 years.

“Oil, Oil, Everywhere…” was the title of a fact-filled essay is a recent issue of The Wall Street Journal, which showed how absurd the “oil shortage” fears truly are:

“To pick just one example among many, finding costs are essentially zero for the 3.5 trillion barrels of oil that soak the clay in the Orinoco basin in Venezuela, and the Athabasca tar sands in Alberta, Canada. Yes, that’s trillion – over a century’s worth of global supply, at the current 30-billion-barrel-a-year rate of consumption.”

Mind you, those are merely two oil fields in Venezuela and Canada, comparative little leaguers vs. the major league oil fields in the Persian Gulf region. In a speech this past October, Alan Greenspan noted that, “During the past decade… gross additions to [world] reserves have significantly exceeded the extraction of oil the reserves replaced.”

So: Shortages have nothing to do with oil prices because there is no shortage. In truth, when it comes to the price of a barrel of oil in today’s market, there is virtually no evidence that supply & demand has anything to do with it. Total world supply and demand have grown at the same constant pace since the mid-1980s. And by definition, two constant factors cannot account for wide fluctuations in the outcome (namely price) of an exchange.
Read the whole Article …….

Many people study U.S. political history, others study U.S. economic history, and a relative few individuals look closely enough at both to see the strong connection – specifically, the link between the performance of the stock market and the fortunes of the president.

The closer you look the more obvious the link becomes. Only fighting a war does as much to shape public perceptions of a U.S. president’s performance during his term in office.

In the obviously limited space I have, I can make only a few sweeping observations. The bear market that began with the 1929 crash put the Democratic Party in office for the 20 years that followed the 1932 election. This string was broken when the Republicans nominated a war-hero, who took the White House in 1952. The Dow Industrials were approaching the pre-crash high, and Eisenhower became the dominant political figure during that bull market decade.

Democrats lost the White House again in 1968, almost three years after the Dow had reached a high that it would not finally surpass for nearly 17 years. Three U.S. presidents came and went during the bearish 1970s, one of whom resigned in disgrace.

The great bull market that began in the early 1980s helped keep Republicans in office for 14 years; a Democrat won by a plurality in 1992, yet the bull market saw him through two full terms of office, notwithstanding multiple scandals and impeachment.

Which brings us to the current Commander-In-Chief, a title which goes a long way toward explaining his reelection this past November. The 9/11 catastrophe, and the military invasion of two countries, tell you most of what you need to know about why George W. Bush won a second term. Yes, his term has included a three-year bear market (2000-2002), though it began before he took office; in truth he benefited from the 2003 market recovery.

Read: Performance, Fortune & the U.S. President?

Credit Growth -The Federal Reserve keeps thorough records of U.S. consumer credit, and most of the data goes back 30 years or longer. They put it all on the Internet, too. Scroll through the numbers, and before long you’ll have what amounts to a crash course in how rapidly the debt levels have grown during just one generation.

New car loans, for instance: In June 1971, the total amount financed averaged $3045 for 35 months. Fast forward to Nov. 2004, and the amount financed averaged $23,984 over 60.5 months.

But that’s just for starters. To see what real growth in the debt levels looks like, “revolving credit” (also known as credit card debt) is the place to look.

The Fed began keeping records on revolving credit in January 1968; the outstanding amount in that month was $1.4 billion. Jump a little more than five years ahead and you come to the first month that revolving credit exceeded ten billion, $10.2 in June 1973. Barely eleven years later came the one hundred billion threshold, $106.26 in December 1984. Near the end of 2004 (November), revolving credit stood at $782.15 billion.

That’s a whole lotta credit card debt. As you scroll the data, you do occasionally notice a marginal decrease in the monthly debt figures, but “more” and “bigger” is the rule….

Read: REAL Credit Growth Looks Like!

Stop placement is where we separate the kids from the adults.

Stop placement is the sole responsibility of you as the manager of your trading business. It is one buck that you cannot pass.

You are the end of the line when it comes to placing stops.

Let me show you why you, and only you, can decide where to place the stop. There are several considerations:

The size of your margin account has the greatest effect on stop placement. When you look at a trade and see where the stop should go, or where you would like it to go, you then have to look at the size of your margin account and determine whether or not you can even consider the trade.

Your comfort level. Although you may have sufficient margin to place the stop where you would like to, and although the stop is logical for the trade, you may not feel comfortable with the stop being so far away (or even so close), and so you will decide not to take the trade with the stop far away, or move the stop back if it appears too close.

Volatility. You must take into account market volatility when placing your protective stop. If a market that normally ticks two ticks at a time suddenly begins to tick five ticks at a time, you must certainly take the level of volatility into consideration. You may find out that you have to place your stop too far away for the size of your bank or your comfort level.

When you use mental stops, there are two other considerations which you must ponder when placing your protective stop. They are: Your speed in placing the order, and the speed at which your broker can place the order. Let’s look at each.

Read: Stop Placement

If you are experiencing a run of wins, don’t get getting carried away in the flush of success. You don’t want to give it all back.

Over Trading is the greatest single cause for losses in the markets. Whether you are winning now or losing now, ninety-five or more percent of all traders trade too often.

Even a daytrader trading a five minute chart has no need to trade every day nor to trade all day long. You should be filtering your trades so that you take only the best of the best.

Overtrading was a problem that took me a long time to overcome because I did not know what I was looking for. Overtrading is a very serious problem, and veteran traders learn to avoid it. In fact, one way to know if a trader is a mature professional is to know if that trader conquered the problem of overtrading.

The biggest problem with overtrading is that you don’t even know you’re doing it. You can overtrade by trading too many contracts (too much size), trading too often, attempting too many positions or sitting and staring at the screen all day.

One trader I met, who was following a system in twenty markets, received entry signals in fourteen of the twenty. The entry prices were such that probably only two or three of them had any chance of being filled. Yet this trader boldly called in to enter all fourteen orders. After the first six, his broker refused to take any more orders. Had they all been filled, the trader would have been several thousand dollars over margin.
Read: Don’t Overtrade!

Do you think adaptation to the realities of the market is the most important thing?

Many times in the past I’ve written about the need to adapt, the need to be able to change your behavior relative to the market because the markets are ever changing.

I’ve stated that mechanical systems may be workable, but for only a short time relative to the life of markets. You must learn to trade what you see and to understand what you see on a chart.

When I first began trading there was no such things as futures contracts for foreign currencies. Why didn’t they exist? Because there was no need for them! In the 1970’s all that changed when the US dollar went off the gold standard and began to float against other currencies. Following that, the Chicago Mercantile Exchange began to create currency futures to provide a place where currency traders could hedge the risks associated with dealing in foreign currencies. Some of these risks are direct and some are indirect. Direct risk is involved for those who deal directly in foreign exchange. Indirect risk involves companies who export or import and receive payments or make payments in the currency of another country.

Ever since currency futures were created, they have been in a state of flux. More recently, for purposes of futures trading, currency gyrations have centered on a massive move away from currency futures to more direct trading in the forex markets. Currency futures, while maintaining their volume and open interest figures, are actually less liquid than they had been previously. Volume and open interest do not reveal the picture of what is happening in the currency futures pits. Volume and open interest levels are being maintained by fewer and fewer futures traders.

In the period from 1992 to the present, we’ve witnessed currency futures moving from “red-hot” to “cool” and now hot again insofar as speculators are concerned. Foreign exchange, which in 1992 was one of the hottest plays, first turned dull and then back again to exciting.

Read : Adaptation to the Realities of the Market

Trading together with a friend can have its advantages. If one of you has more experience and the other more money, you can help your friend through your experience and he can help with margins. Together, you can trade larger size and perhaps make more profits. However, unless you both agree to the same line of action and what the possible contingencies might be, it is essential that you decide which of you is to execute the trades. It is more difficult reaching trading decisions together than on your own.

If you haven’t decided on the contingency measures in advance you’ll find yourself arguing and disagreeing in the middle of a trade going against you when timely action is of the essence. It can be quite disheartening and dangerous.

If you are not absolutely sure about your partner, and you don’t agree with the way he trades, you are better off trading on your own.

Take for example an instance where the order placed was ambiguous and the broker executed it twice. The traders accepted the mistake and then the market moved against them. The partner with the greater margins but less experience was in charge of execution. He placed the order before the market opened to roll the position out. The market moved against him, he covered the position at three times the premium received and then the market corrected. He was unable to get the other side because he couldn’t watch intraday.

Trading is a business! You must be totally prepared in terms of having a business plan, knowing how to place orders, and being on top of them from beginning to end. Even then things can go wrong, but being unprepared can lead to disaster. The smallest details must be thought of and prepared in advance, but mistakes and oversights still happen.

I came across an interesting concept. The path to enlightenment involves conquering five human weaknesses: greed, fear, ignorance, pride and jealousy. We should be all familiar with the first two, which cause much grief to traders, but the last three can be a big problems, too, so it’s worth pondering on them. Human weaknesses always show up to undermine one’s trading.
Read: Trading in Partnership

I am frequently asked how long one should backtest a trading system. Though there’s no easy answer, I will provide you with some guidelines. There are a few factors that you need to consider when determining the period for backtesting your trading system:

Trade frequency
How many trades per day does your trading system generate? It’s not important how long you backtest a trading system; it’s important that you receive enough trades to make statistically valid assumptions*: If your trading system generates three trades per day, i.e. 600 trades per year, then a year of testing gives you enough data to make reliable assumptions*. But if your trading system generates only three trades per month, i.e. 36 trades per year, then you should backtest a couple of years to receive reliable data.

Underlying contract
You must consider the characteristics of the underlying contract. The chart below shows the average daily volume of the e-mini S&P:

It doesn’t make sense to backtest a trading system for the e-mini S&P before 1999, because the contract simply didn’t exist! In my opnion it doesn’t make sense to backtest an e-mini trading system before 2002 because at that time the market was completely different; less liquidity and different market participants. I believe that a reliable testing period for the e-mini S&P are the years 2002 – 2004.

* What is “statistically valid"?
Recently I received an article from a Ph.D in statiscs. He explained the correlation between the sample size and the “margin of error” in the table below. The bigger the sample the smaller the margin of error, but usually a sample date of 200 trades should be sufficent. If your trading system generates enough trades, then you should use 500 - 600 trades.

Read Article with images: Back Testing

The most recent GDP figures seem to echo what Fed Chairman Greenspan said in February in his semiannual Monetary Policy Report to the Congress. For brevity’s sake I’ll condense his opinion about the U.S. economy into three words: All is well.

I could offer a fact-filled and scathing rebuttal, but why be quarrelsome? Instead I’d like to answer this simple question: “How quickly can a very large industrial economy go from good to bad?” My case-in-point is recent indeed – up through the business news as of February 16, 2005. All the headlines and subheads come from BBC News reports. Please note the dates.

Read This Article by Robert Folsom

Emini Simulated Trading - The “voodoo science” theory would make sense if it wasn’t for the fact that there is a significant number of traders who are able to consistently make profits in the stock/futures market. These traders use technical analysis as their main tool. Since any trader has or can have access to the same TA tools we have to ask how can a small group of traders consistently win and the other larger group, more or less consistently lose in the stock market game. What is it that winning traders know about technical analysis that gives them the upper hand?

Pivot Point Tuition - The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).

Because so many traders follow pivot points you will often find that the market reacts at these levels. This give you an opportunity to trade.

Before I go into how you calculate pivot points, I just want to point out that I have put an online calculator and a really neat desktop version that you can download for free HERE

Heads Up every one!

I have just found out that Mark Mc Rae is launching a new forex site. I was just there now and its one to book mark. It is not complete yet and is only officially launching some time next week.

But here’s the inside track! Mark has spilled the beans, he has taken all the Forex tutorials we have all be scratching for and making them available to the public.

So go and take a look at the site: Marks Forex or Interbank Forex Currency Trading