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>Mervin,
>
>Here's my humble observation, hope it can be of some help.
>It seems that you are trying to trade based on what you think might happen
based on some stimulus (rates, etc..). In today's extreme and complex
market environment, things do not always unfold as one might logically
think they should. I personally let the charts tell me when to enter a
trade, and I use fundamentals to back it up. Sort of the opposite order
that you had mentioned.
>I use technical indicators and chart patterns.
>
>As a few examples:
>Even thought the US equity markets have been going higher, I have refused
to go long any index futures due to the fact that economic fundamentals
make no logical case for stocks to keep rising. The risk/reward is way off.
Any day, one of the hundreds of sharp pins can break this massive bubble
and it could be limit down for two weeks, bankrupting any account.
>
>The bond market has been in chop mode for the last few weeks, and even
though the short term trend is still down, it is risky due to the extreme
equity prices. If the stock market crashes, the bond will likely skyrocket
(with the help of the stupid-ass folks at the Federal Reserve via open
market operations). But here the fundamentals of a strong bond (lower bond
rates) makes no fundamental sense given the extreme level of the US debt
that the bonds represent, and the precarious position the US economy will
find itself in when the long-overdue crash does finally occur. What will
it take for foreignors to repatriate their treasuries en masse ? I think a
big market crash, some good ol' fashioned panic in the streets, and the
confidence will be gone. The bond market can go either way. My money is
that it will go DOWN long-term (i.e. T-Bond rates to rise as inflation
increases). Also, it is certain that the Fed will continue to flood the
economy with dollars contributing to an already staggering M2 and M3 money
supply, and the Fed will lower the Prime and Discount rates in the
foot-steps of the Japanese, to practically zero.
>
>Currencies are the toughest to trade since governments are big players in
these markets and practically daily there is new rhetoric floated by some
government official when a trend starts to develop. This hot-air does
indeed move the prices of these currencies significantly. The
roller-coaster ride is not worth it. The only folks I know that are making
any money at it is large hedge funds like George Soros, who will short-sell
en large masse countries currencies. Classic example: Brazilian Real.
Soros made a nice bundle shorting it, as well as, a nice bundle shorting
the Thailand Baht, and his famous $2 billion profit short selling the UK
Pound Sterling.
>
>The safest money in the futures market has been to short sell commodities
on rallies. Wheat, SoyBeans, Cotton, Coffee, Cocoa.
>
>You mentioned that it was amazing how fast your balances fell. Money
management is a lesson I learned the hard way. It is easy to be too
aggressive by adding to many contracts. My rule of thumb is to have
4-to-1 balance to position ratio at a minimum. e.g. for every $3,000 tied
up in contracts, have at least another $9,000 in cash in the account. You
need to give the trade room to develop, and not have to exit a trade
prematurely due to monetary constraints.
>
>One last idea, in my opinion, mechanized trading systems do not work. The
break out system is the best performer, but blindly following any system is
a recipe for losses due to the fact that most systems are either trend
following or non-trend based (and what works for a while suddenly stops
working.) I use systems as filters to help select stocks based on extreme
indicator values. I then review the charts, looking for indicator
agreement and price action (trendline breaks, breakouts). I use:
Stochastics, RSI, ROC, Momentum, Divergence from Moving averages (50, 200
period), ROC of Volume, and ADXR. I scan the weekly charts first. I use
key support/resistance as guides for potential profit targets, I watch
daily price patterns (candlestick patterns) as indications of reversals,
and reaction highs and lows as stop loss targets.
>Buy the book called Martin Pring on Market Momentum. Excellent
explanation of each of the above indicators and their uses.
>
>Hope some of these comments help and give you some things to explore and
think about.
>
>Cheers,
>James
>
>http://www.advsoftware.com
>(soon to be moved to http://www.techtrading.com
>
>----------------
>At 10:03 AM 4/29/99 -0700, you wrote:
>>Hi RTs,
>>
>>Last year, I traded fundamentally for a few months and then traded
>>technically for the next few months. The result: my fundamental
>>performance was good and my technical performance was disastrous. My
>>technical method was a modified breakout rule and it caught all those
>>false breakouts and it burned my capital away slowly but surely.
>>
>>My fundamental analysis is limited to economic theory. The following is
>>my experience from actual trading.
>>
>>My first serious attempt to develop an economic model came in late
>>1997. In 1997, Asian currencies collapsed. And their economic
>>situation changed very suddenly. We have seen in the past how these
>>sudden economic shocks could occur (USA 1929, Brazil & Latin America
>>early 1980's, Japan 1990, Mexico 1994, etc.), but this time I have
>>enough time and materials to do a study. So, after a few months'
>>intense study, I developed my "Far-from-equilibrium Macro Economics
>>Theory" (FFEE) in May 1998. Certainly, I would use it in trading.
>>
>>I opened a futures account in July 1998. The first fundamental trade
>>from FFEE was shorting Canadian Dollar. It worked. Then, I went long
>>Eurodollar, US T-Bond and Japanese Yen. I also went short Dow Jones
>>Futures on Sept. 29, 1998. Amazingly, they all worked, just as my FFEE
>>predicted. I made money in Canadian Dollar, Eurodollar, Japanese Yen
>>and Dow Jones. Unfortunately, I stayed in US T-Bond for too long and
>>there was a reversal on Oct. 8 and Oct. 9, 1998. I have protective
>>stops, but I was filled 32 ticks below my stops. Fortunately, I took my
>>profit in Dow Jones Futures on Oct. 9, 1998 and it was a good decision.
>>
>>The speed that market took my profit away was remarkable, especially in
>>US T-Bond. That left a deep impression. The collapse in US T-Bond on
>>Oct. 8 & Oct. 9 was a resonance (gamma trend). And it was AGAINST me.
>>The feeling of being caught in this type of situation was very negative,
>>although this should be no surprise.
>>
>>Since US stock market held up very well on Oct. 7 & Oct. 8, I suspected
>>that an interest rate cut from the Fed was on the way. I decided that
>>the next big move was going to be in Swiss Franc and D.Mark futures
>>market. The only question, of course, is whether this expected big move
>>would be up OR down. I had to make a decision.
>>
>>My FFEE suggested that Swiss Franc and D.Mark would depreciate against
>>US Dollar. An interest rate cut will boost US stock market and capital
>>would flow from Europe to USA, hence US Dollar should go up. However,
>>my 4 year study in University and my Economics Degree suggest another
>>scenario. Since I expected that the US would cut interest rate soon and
>>Europe was going to keep its rates unchanged, academic economics theory
>>points to an appreciation of Swiss Franc & D.Mark against US Dollar due
>>to interest rate differencial. At that time (Oct. 9, 1998), US Dollar
>>was very weak. I thought about it. My FFEE was right 5 times in a
>>row. But I was not confident. Academic economics theory must be
>>correct millions of time. If not, it would not be published in the
>>textbook, I thought. Then, my intuition came in and I believed that
>>after a series of violent swings in the over-valued US stock market, the
>>expected capital inflow might not occur. I decided to go long Swiss
>>Franc & D.Mark futures.
>>
>>I lost money in both trades. When the Fed cut interest rate, Swiss
>>Franc and D.Mark futures went up and I bought more. That was the only
>>"up" day and then Swiss Franc & D.Mark futures were sinking fast. My
>>economic knowledge from academic economics was wrong and my FFEE was
>>right.
>>
>>After that, I still had substantial profit from my Jap.Yen trade. I
>>caught the whole move in early Oct. 1998. I decided to use the money to
>>trade technically. I had a modified breakout system that was designed
>>to avoid intra-day breakouts. I used it because the system went short
>>sugar in Aug. & Sept. 1998 and it also made several other profitable
>>trades. However, later on, there were so many false breakouts which
>>were not intra-day in nature. So, I lost consistantly by catching false
>>breakouts.
>>
>>I have suspended trading for a while due to my faulty technical system.
>>In early March, my fundamental economic theory FFEE again gave me a
>>scenario. After G7 meeting, I was convinced that the US had given a lot
>>of pressure on Europe (cut interest rates) and Japan (increase money
>>supply). According to FFEE, these actions would drive capital out of
>>Europe and Japan. A capital flow into USA would occur and there would
>>be further boom in US stock market. So far, this scenario is correct.
>>
>>
>>All the best!
>>
>>Mervin
>>
>>
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