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It's Possible to Achieve Good Timing using Fibonacci Numbers
How would you like a simple but reliable way to forecast future market tops and bottoms? Try using Fibonacci ratios. The two most popular Fibonacci ratios are .618 and 1.618. Several software packages have these fibonacci ratios included as part of their tools, and for good reason. For whatever the underlying cause, whether it is natural laws of the market or a self-fulfilled prophecy as some may conclude, using these ratios can help a trader find market turns. What you do with those market turns is up to the trader.
Simply locate two concurrent tops or bottoms. Make sure they are no mere blips on the screen, but clearly changes of trend. Count the number of price bars from one top or swing bottom to the other top or swing bottom. Okay, you have the distance in time from two extremes, now lets forecast out into the future.
Lets assume you are going to use the last two tops. Say the distance between them is 20 days. Take this distance (20), and multiply it by both .618 and 1.618, adding the result to second of the two extremes. Rounding for this article, .618 of 20 is around 12. Therefore, count 12-days from the second top or bottom of the two extremes you're using to arrive at your forecasted turning date.
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How valuable is this information? Back in 1990, I was getting beaten up pretty good by market action. The Stochastic, moving averages, etc. were not helping. Then I came upon Fibonacci ratios and their applications, and from there went on a wonderful long streak of wins in Pork Bellies by forecasting exactly when the market would turn. All my debts were quickly wiped out and soon I was in the black by several thousands. This was the beginning of my trading career.
Today, I dont use Fibonacci time days as they are too far apart, and further study and experimentation has brought me to market geometry, which although Fibonacci no doubt is in there somewhere, it makes up only a small part of the whole equation. That is how Fdates was born early 1997. But the fact remains you can still use your hand calculator to get some time days, and you can learn to properly use the information for profit. Once you solve for a time day, simply wait to see if you will have an opportunity to use it. So pull out your calculator and try a few charts using these ratios. Soon you will find it easy to do. What I mean by this is that, even if you have a time day, there are other factors you should keep in mind. One of those is trading with the trend, not against it, and where to enter price wise.
Commodity Trading is Still the Best – J. L. . .
Ill say it again. Commodities are at once both the safest investment and the riskiest trading vehicle in the world! Lets talk investment once more Where else can you own a highly leveraged and instantly liquid investment for nothing? One that is completely safe because it can never go bankrupt be "delisted" or become worthless. (You can buy cheaply enough to handle a drawdown and maybe buy some more, cant you? After all, any drawdown is the amount of your Actual Investment.) You say Ive forgotten Margin? Not so. Thats in your T-Bill earning what your "sweep" account earns for you stock traders. Except for one thing. That money is no longer in that sweep account after you buy your stock.
Being as I am, when I decided to do commodities 17-years ago, on the way to the library I stopped and bought the only commodity book my local bookstore had. Pretty basic stuff, but the first lesson was to buy an historically cheap (also relative to my account size) corn contract putting up $540 and adding money only if my commodity broker called. The rule was to take profit when it equaled my total maximum outlay (including margin). That would equal or exceed a 100% return on my money (exceed if my broker did call) even if it took two years of roll overs! The lesson really was, as long as youre a buyer, true commodities will always eventually return to a profitable price.
Now tell me that 99% of us cant figure that out. Dont 99% of us only think were in it for the money? Isnt the money the excuse to challenge ourselves to "beat the odds"? Maybe human ego, not a little greed and what the Catholic Church called the sin of presumption when I was a kid? (Not surprisingly the author of above book included two mechanical systems that he proves made him money. Then he says, "A strange thing happened. I lost interest in the methods. I had proven them and that was that). What a shock! We have met the enemy and it's us!"
Since the above simplicity will clearly double our money (it doesnt have to take 2-years), why do you think we all dont just do it? Ill be waiting here by my CTCN for your answers. My last New Years resolution is, from now on, to do (not trade) commodities.
Testing Trading Plans - RM . . .
It was a long year, a great learning experience and a greater appreciation for the markets. Trading is not as easy as some would have you believe. Their goal is to sell you a product or collect fees.
I am thankful for being introduced into the commodities trading business by one of them, but even more thankful that Ive learned a craft through hard work and perseverance without loosing my shirt.
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What has helped is a combination of a will to succeed and finding a trading plan that works for me. Sticking to it will be the true test of success. Sticking to it is the application of discipline.
Its easy to get caught up in all the intrigue of striking it rich with all the opportunities commodities trading offers. Read the ads and articles in trading publications and magazines and youll see it for yourself. But if you work hard, plan the trade and trade the plan, and take a break every now and then, that hard work will pay off.
It started with trading options mostly because the thought of a high-risk futures contract was not something I was willing to risk being new to the markets. I spent way to many hours and money searching for something that did not exist . . . a Holy Grail type trading system or methodology that would bring about countless profits and a wealth of good fortune. But after many years of trading and hard work, something was discovered . . . a trading plan that works based on countless hours of testing and refining.
The goal is to find a trading system that offers good signals based on sound technical indicators, test its ability to be profitable in the intended markets, and develop a plan that works according to my trading habits and comfort level. For some, this may be day trading. For others, short-term to intermediate term on daily price bars. And for those with deep pockets and a great deal of patience, long-term trading (6-12 months). As for myself, any trade longer than 20 trading sessions is going to be very profitable or its a very bad trade, which meant I broke all my rules. A few years ago that may have been the case, but not today!
A trading plan must be tested and proven if one expects profitable results. Its difficult to assess slippage when testing a plan on paper (or in my case, on the computer). Its even more difficult to assess the necessary discipline that will keep you focused. However, a disciplined trader coupled with a proven trading plan will help instill the confidence necessary to achieve success.
In my years of trading and testing to-date, I have been able to witness market behavior and price action on a wide variety of markets during varying degrees of fundamental change. It is the fundamentals by which markets are driven and technicals by which they are traded. What I have learned is that testing my plan requires discipline to take every generated signal in all markets that can be afforded and to avoid the more volatile and expensive markets.
The analysis covered a wide variety of futures markets where a typical trade would last only 3 to 5-days with a few trades lasting 10+ trading days. I guess it makes me a short-term position trader. Several trades only lasted 2-days at best because price action must dictate a valid signal whether profitable or not over the next few days. Stop-loss was placed far enough away so spikes wouldnt stop me out yet protect against a major move against my position.
Trading is a discipline, not art nor science. There is no room for emotions. I use the technicals for good entry strategies, stop-loss placement, and adding to positions. Candlesticks can aid in warning of reversals. Divergence adds to that confidence that a reversal is eminent. Discipline, must be learned thru testing and real money trades.
A trading system on its own should have the ability to at least perform profitably with enough cash backing up the expected and inherent account equity drawdowns. This is the problem with almost all-mechanical trading systems. Not enough available funds to continue trading during periods of large drawdown. The development of some simple rules have proven profitable by not waiting to be stopped out of a trade either by an initial stop loss point or a trailing stop.
Rule 1: Price action must dictate a valid trade signal upon the day of entry or the trade is exited on the open the following day.
This works very well at preserving capital. The type of price action that must dictate the valid signal is best described with candlestick patterns where a white candle is bullish and a black candle bearish. This article is not intended for the study of the various candlestick patterns, but it is those patterns that determine the validity of a signal. If the terms doji, star, harami, engulfing candle, falling window, and thrusting candle mean anything, then you will be able to understand Rule Is application.
Candlesticks can be an asset to a traders arsenal if used to warn of an impending change. They are also useful as pattern entry signals if used properly with other technical indicators. I use candlesticks to do just that. An example would be if short a market and upon the day of entry and a bullish engulfing candle, rising window or thrusting candle occurred, then an order to exit the market on the open the following day would be placed. This would eliminate any second guessing or further losses if the market continued in the same direction against your position. The probabilities of the market moving back in your favor are much lower, although it does occur.
Other examples might be if a signal was generated to enter a market short based on a large bearish candlestick and the following days candlestick was a white harami or doji, the same exit criteria would be applied provided these patterns occurred near the high of the bearish candlestick.
All other positions relative to the signaling candlestick would not invoke the exit criteria. If you are short a particular market and you get a bullish engulfing candle with higher swing lows and higher swing highs; it would invoke Rule 1 because the market could not break the previous low. This could indicate the correction or 'a' wave is not complete.
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Scapling the markets is a simple and easy to use trading system which uses basic technical indicators and is based on a sound trading plan. A trader who follows this trading system will likely be trading the market trend and rapidly able to determine when to trade and when not to pull the trader trigger and stay on the flat the market and on the sidelines.
Rule 2: The breaking of short-term resistance/support on the close should be used to move your stop-loss to the projected extreme high or low pivot point, close to the market price.
Stop loss points are used strictly to minimize large losses yet still leave room for small corrections inherent in the markets. A bullish engulfing candlestick 2-days in a row would be a good example if short the market. Breaking the highs set 3-6 days prior would be another example.
Not giving back all the gains made is what makes this rule valuable. However, it is more subjective than Rule 1 and should be applied cautiously. My system calculates the extreme high or extreme low pivot point, which is a projection of the next days extreme higher or lower trading range. If stopped out, likely a minor b wave will form on a correction, which will allow you to get back into the trade. If not, entry can be taken when market breaks support, for example, if looking to short into the trend.
These trader rules are basic and should be easy to follow. The application of these rules can improve a trading systems performance. Results show that these rules do preserve capital and therefore increase profitability. They are mechanical enough that emotion can be totally removed.
The trading plan - After one year of real-time testing (not back-testing), it has been proven that the addition of rules added to a mechanical trading system can increase the profitability and limit losses at times when markets are not trending.
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It is estimated market trends only occur less than 20% of the time, so it makes sense to apply some rules to mechanical trading systems that only work well when markets trend.
This trading plan will be used in my money trades and will be profitable. To the extent of my testing is unclear. But the testing which brought this trading plan to life will reinforce the discipline necessary to succeed. I suppose many traders do not consider this vital step in their evolution to become successful traders and that will bring doubt and uncertainty into trading the mechanical trading system.
"Get Out Now" - TB . . .
I agree wholeheartedly agreed that, "Deflation is the greatest threat to the stability of this economy we have ever seen." I have been saying this for years. However, the economy is like a massive ocean liner -- it takes a long time for it to slow down from full steam ahead and then turn around to go in the reverse direction.
The fundamental reasoning is most convincing. In addition, I would like to add that the coming deflationary spiral is also cyclical - in short, human nature being what it is, we are due for a similar situation to the 1930s (though not necessarily exactly the same). It is true that the lightning fast advances in technology will eventually reinvigorate this (in general) great capitalist system we operate, but capitalism is not perfect; it is inexorably and detrimentally affected by those two deadly psychological forces - greed and fear.
Capitalism will not fail in the long run as communism has, because it thrives on competition - the exact opposite of communism, which destroys incentive thereby breeding slothfulness. However, the world is awash with a surplus of goods of every description and, as was the case in the 30s, we are due for a massive adjustment before we can power on again. Not even the mighty Greenspan, clever as he undoubtedly is, can stop this. Perversely, he may well have exacerbated the situation through "sophisticated" manipulation of the economy, thus inviting even worse deflation when it eventually arrives, as it inevitably will.
One thing Greenspan, and for that matter every other human who has ever existed, cannot do is to alter human natureotherwise the market would be perfectly ordered and we chart traders would not be able to profit from the deviations from true fundamentalsand wouldnt that be a shame!
Please allow me to repeat some words of wisdom "Get out now. We have seen 11,000 (for the Dow), but it fell and it fell hard and will not recover quickly.
Im convinced that the big money is to be made on the downside - and down is about to happen." I would add not to forget that usually the market leads the economy, so keep an eagle eye on those charts rather than wait for fundamental signals.
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