Stops, Stops, and More Stops

More times than I can remember, I have said that protection and preservation of capital is the fundamental rule of trading. Simply, if you blow all your cash, how can you trade?

And as any successful trader will tell you, placing stops is one part of protecting and preserving your capital. Given this I am advising you all to read up on some trading strategies with regards to stops placement for your trading positions. There are many books (and some internet websites) available with lucid explanation of the available stop orders is illuminating and helpful to any trader. As well, it discusses strategies for placing stops in a variety of situations. For example ......

"On specifically where to place your protective buy or sell stop upon entering a trading position, one of the most popular and effective methods is to find a technical support or resistance level that is within your financial loss parameter for that particular trade."

As well, some of these books discusses one of the points I have also made time and again and that is:

"If your trade becomes a winner and profits begin to accrue, you may want to employ protective 'trailing stops,' whereby you adjust your protective stop to help you lock in the profit should the market turn against your position."

Letting your profits run does not mean letting the trade run without protection. If you find your trade hitting your profit target, and the trade is still showing strength, either tighten your stop or place a trailing stop to track that run.

Some books are particularly helpful to the trader who wants to know more about stops and how to use them. Some internet websites offers "trading educations" that touches on tactical stops trading simple enough for beginners and what's more >>> it is FOC to booth.

"For decades the individual small trader has heard unsettling stories that the floor, or pit, traders know exactly where the stop orders are placed in a market, and will 'gun' for those stops just to eject the individual trader from the market--only to see prices then reverse course after the stops were triggered."

Some author explains that conditions have to be just right for this to happen, and that it happens less today than it used to because of the communications changes that now send information down to the “pits” rather than up from the pits. This may be true, but let me tell you, it definitely still happens, and you need to know that it still happens.

What to do about it, though, is another topic all together. I have yet to figure out how to avoid this, other than to slightly change your stop when the price nears your placement. And since I have stated over and over again never changing your stops is good money management, I am somewhat stuck, as you are if you follow my advice. Perhaps the solution is embedded in a key sentence in the minds of a trader.

"Floor traders (aka crocs & sharks) seeking out the individual traders' protective buy and sell stops is more an art than science, as market conditions have to be just right for their efforts to pay off."

Placing stops can also be more of art than a science. Placing stops that work at both ends of the trade will come down to how well you understand your market, the movement of that market, and the overall market conditions surrounding your trade.

HAPPY TRADING

Regards,

ZL

The Art of Trading, What Does it Take?

The other day, a friend told me I needed to get out of the kampung to experience some big-city “fun,” so we went to an art exhibition to see the paintings of a local artist who has become quite successful. Yes, it has taken him many years to achieve his status as that of a “master,” but he has earned his success by painting, painting, and painting more. I enjoyed his works even though I'm not much of an artist myself, but, as usual, the whole endeavor turned my mind to trading, and for some inexplicable reason, the twists and turns of my thinking brought me to what I am about to to share you …

Becoming a master at anything requires years of training, which can be formal or not. Regardless, what has to occur is a two-fold process.

First, one has to learn the mechanics (technique) of what he or she is doing. In painting, the technique is all about strokes, color, light, perspective, and effect. In trading, technique is all about the trade, how to find it and execute it. Many people can learn technique of a “thing,” but less learn how to move from technique to mastering the art of whatever that thing is.

The second step in becoming a master is more subtle and almost indescribable, as it takes us to a place beyond the practicality of process; it takes us to a place in the mind.

To become a master painter, one has to, over time, incorporate the subtleties of technique into his or her unconscious mind. One has to flow and meld with the painting. This means when painting, an artist “knows” just how long to make a stroke, just how much color to add to a scene, just how much light or darkness will create a mood, and just how deep or wide to make the perspective for the intended effect.

This ability only comes with time, knowledge, and experience.

The same is true for a trader. One can readily learn the technique (mechanics) of trading, but to become consistently successful, time, experience, and knowledge have to come into play. One has to learn the subtleties of overall market movement, the reality of economic global flow, the effect of news and analysis on markets, and relationships between markets that can and do effect movement (intermarket analysis).

Once learned, second nature takes hold, and many of the decisions made are made without conscious knowledge.

This, then, becomes intuition, a sense of what will or should happen producing an “unvoiced” decision based on “feel’. This sense is the same one that produces master painters. This implies that one important aspect of successful trading is artful.

I believe the true masters of trading markets practice their “trade” with far more than just mechanics and knowledge. In their years of experience, they have mastered the mechanics of trading, but more importantly, their years of experience have incorporated into their minds, a sense of the markets and all of the surrounding influences upon those markets.

Their years of trading have created an intuitive understanding that affects their decisions whether they know it or not. This is the reason why it is difficult for those who follow these masters to duplicate their success.

In the end, one can try to copy the “style” of a master, but the outcome will surely be less than what the original is. No, the pure fact is that to become a master anything, including trading, one has to do that thing over and over again, always focusing on eliminating “errors,” always repeating the things that worked, always trying new things to improve, and, most importantly, always learning everything one can learn about whatever that particular medium is. In trading, the latter is, arguably, one of the most important …

HAPPY TRADING

Regards,

ZL

Random Charts >>> Market Movers Pre-Xmas Closing

Please click on images to ENLARGE. Thank you.

DJIA looks 2b enjoying double indemnity by way of SMA 30 & 50 support.

Until these 2 moving averages are violated, DJIA nampak OK aje :P

S&P 500 MACD just formed a Golden Cross while the Histogram Round Top formation is in progressive motion.

RSI 62.33 is stil below 70 overbought zone.

Crude oil ran smack into resistance. Traders may need to revaluate the strength of the greenback for oil futures.

Another round of Dollar vs Energy leveraging? Some form of arbitration could be on the cards.

Soyabean Oil is facing a long & hard climb before it can even reach US$40 Resistance.

Since CPO rise and fall in tandem with Soyabean oil, a sturdy support will limit CPO downside prices.

HAPPY TRADING & GOODLUCK2ALL

BURSA MALAYSIA >>> FKLI and FCPO Overview 24 Dec 2009

FBM KLCI Futures Slightly Firmer At Close
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) futures on Bursa Malaysia Derivatives closed higher on Thursday amid firmer underlying cash market, said dealers.
The December 2009 contract rose 0.5 of a point to 1,264.0, January 2010 inched up 0.5 of a point to 1,265.0, March 2010 added 1.0 point to 1,265.0 and June 2010 went up 1.5 points to 1,265.5.

Total volume improved to 7,508 lots from 6,809 lots yesterday while open interest increased to 19,858 contracts from 17,561 contracts.

The underlying FBM KLCI finished 3.41 points higher at 1,263.94 after opening 0.52 of a point lower at 1,260.0 this morning.

Crude Palm Oil Snaps Three-Day Decline, Buoyed By Crude
Crude palm oil futures on Malaysia’s derivatives exchange ended higher Thursday, snapping a three-day decline as traders covered short positions in reaction to rising crude oil prices.

The benchmark March contract on the Bursa Malaysia Derivatives ended MYR54, or 2.2%, higher at MYR2,554 after reaching an intraday peak of MYR2,573.

However, a decline in Malaysia's palm oil exports prevented further gains on the BMD.

Malaysia's palm oil exports during the Dec. 1-25 period declined 11% compared with Nov. 1-25, to 1.0 million tons on a decline in purchases by China and India, both major buyers of the vegetable oil.
Exports to China declined 10% to 277,110 tons while shipments to India fell 46% to 131,000 tons, data from cargo surveyor Intertek Agri Services showed.

Shipping executives and traders said exports during the full month of December will likely decline by 10% on month to around 1.28 million tons.

The weak export demand may lead to a slight build in December palm oil stocks, which could result in selling pressure, trade participants said.

As at end-November domestic palm reserves were at 1.93 million tons, the Malaysian Palm Oil Board said recently.

"Currently there are more imports from Indonesia compared with palm oil shipments out of Malaysia, and the momentum of exports is weak," said a Pasir Gudang-based shipping executive.

On Monday, another cargo surveyor SGS (Malaysia) Bhd. is expected to issue data on Malaysia's Dec. 1-25 palm oil exports.
At 1000 GMT, light, sweet crude for February delivery on the New York Mercantile Exchange was trading 40 cents higher at $77.07 a barrel after settling around 3% higher overnight.

January soyoil on the Chicago Board of Trade was trading 35 points higher at 38.43 cents a pound on e-CBOT by the end of trade on the BMD.

Cash palm olein for April/May/June was traded at $780/ton, free-on-board Malaysian ports, said a Singapore-based broker.
Cash CPO for prompt delivery was offered MYR50 higher at MYR2,500/ton.

Open interest on the BMD was 80,746 lots Thursday, down from 82,890 lots. One lot is equivalent to 25 tons.
A total of 8,262 lots of CPO were traded versus 12,065 lots Wednesday.

TECHNICAL ANALYSIS >>> Composite Index 24/12/2009 / 综合指数 2009年 12月 24日

Composite Index 24/12/2009
As indicated by A, the FBM KLCI tested the Bollinger Middle Band on Thursday, but still resisted by the Bollinger Middle Band dynamic resistance. Therefore, the immediate outlook for the KLCI is still weak while the Bollinger Middle Band dynamic resistance remains intact. Other than the Bollinger Middle Band, the 1288 remains the resistance for the KLCI while the support is still at 1257 Fibonacci Retracement.

As shown on the chart above, the Bollinger Middle Band moved up slightly, and this may suggest that some slight improvement for the KLCI movement. Nevertheless, the KLCI has to first break above the Bollinger Middle Band, with the Bollinger Bands expanding, then only the KLCI would have a chance to regain some strength.

As indicated by B, total market volume further declined, while further below the 40-day VMA level. Therefore, the market participation is low, and the market sentiment is also weak, as the KLCI is still trendless.
As circled at C, the Stochastic breaks above 30% level, as the KLCI technically rebounded. Therefore, it is breaking away from the short term bearish region. If the Stochastic should break above 70% and stay above that level, the short term movement for the KLCI would pickup some momentum.

After consolidating for a period of time, the KLCI is showing a slim chance of breaking away from the weakening movement. If the KLCI should successfully breaking above the Bollinger Middle Band, the KLCI would have a better chance to regain some ground.

Nonetheless, the positive signal should be confirmed by the expansion of the Bollinger Bands with the KLCI above the Bollinger Middle Band.

综合指数 2009年 12月 24日
如图中箭头A所示，富时综合指数上探布林中频带（Bollinger Middle Band）的阻力，惟综指始终在布林中频带遇阻，未能成功突破此动态阻力线，这意味着综指并未确认转强的讯号。综指当前的阻力水平除了布林中频带外，就是1288点的费氏线，支持水平则落在1257点的费氏线。

如图所示，布林中频带稍微翘起，这暗示综指有止跌转强的迹象，无论如何，综指是必须先上扬突破布林中频带，同时再加上布林频带开始打开，那综指才有望形成一个上扬的趋势。

如图中箭头B所示，马股成交量继续下滑，这是市场交投继续低迷所致，所以整体综指维持在一个横摆巩固的格局。

如图中C圈所示，随机指标（Stochastic）成功上扬突破30%的水平，这表示综指的短期走势摆脱了下跌的趋势，接下来若随机指标能继续上扬，并进入70%以上的话，那综指的短期走势将有望形成一个上扬的趋势。

综指在盘整了一度日子后，有开始摆脱下跌的迹象，接下来若综指能上扬突破布林中频带，那综指继续转强的机会浓厚。由于布林频带有开始打开的迹象，所以当布林频带接下来开始明显的打开时，那将是综指摆脱横摆巩固的时候了。