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<DIV><FONT face=Arial size=2> Good Morning <SPAN
lang=EN-US>RTers</SPAN></FONT></DIV>
<DIV><FONT face=Arial size=2><SPAN lang=EN-US></SPAN></FONT> </DIV>
<DIV><FONT face=Arial size=2><SPAN lang=EN-US>While watching CNBC and Alan
Greenspan addressing the Senate, and being forced out of the market while he is
speaking, as per my normal convention, I thought I would reflect on a question
that was put to me the other day of how you define a trend.<SPAN
style="mso-spacerun: yes"> </SPAN></SPAN></DIV>
<P class=MsoNormal><SPAN lang=EN-US> E</SPAN><SPAN lang=EN-US>veryone wants
to step onto a trend at the beginning and step off at the end, pocketing the
profit!<SPAN style="mso-spacerun: yes"> </SPAN>The trouble is, of
course,<SPAN style="mso-spacerun: yes"> </SPAN>knowing when the start is
and when finish is!<SPAN style="mso-spacerun: yes"> </SPAN>Consequently,
people try to define a trend and we hear such simple concepts as “higher highs
and lower lows”, but that doesn’t really help matters much, as it is always the
next bar that tells you – or many bars possibly if you are using moving averages
or other indicators.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>Whatever time
frame you are using, you have to wait for the cursor to go up and down until the
end of the bar – often wanting to make a decision on the outcome, before it
ends!<SPAN style="mso-spacerun: yes"> </SPAN>With a five minute time
frame, you are more or less glued to the screen, with a daily time frame,<SPAN
style="mso-spacerun: yes"> </SPAN>you can be playing golf and decide your
fate at the end of play.<SPAN style="mso-spacerun: yes"> </SPAN>However,
with the former you can play with less money and tighter stops and, on the same
instrument, you may be stepping on an off several trends and counter trends
during the daily trend, if there was one by the end of it.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>Trends are
determined by support and resistance in the market.<SPAN
style="mso-spacerun: yes"> </SPAN>Identify them and you may get somewhere
towards identifying the start and/or finish of a trend;<SPAN
style="mso-spacerun: yes"> </SPAN>but of more importance, at least to a
day trader, is being able to identify the difference between a change of trend
or a retracement of an existing trend.<SPAN style="mso-spacerun: yes">
</SPAN>Accurate measurement and assessment of this aspect of a trend is the most
important part of (day) trading.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>While I only
trade the T-Bonds (because of their liquidity, pace, range, one tick bid/ask
spread and a number of other key factors) I have to track the S&P, because
of the very close relationship between the two.<SPAN
style="mso-spacerun: yes"> </SPAN>Currently, the S&P leads the
bonds and this in itself can be very helpful in assessing the position of the
bonds and what it is likely to do at the next juncture.<SPAN
style="mso-spacerun: yes"> </SPAN>Now with the bonds, I can keep score of
all the key resistance and support areas and, such is the normal movements of
this instrument, that I am comfortable with reading what it is likely to do in
given circumstances.<SPAN style="mso-spacerun: yes"> </SPAN>But the
violent volatility of the Spoos is such that I could not even entertain trying
to day trade this instrument.<SPAN style="mso-spacerun: yes"> </SPAN>It is
just too fast and furious for me to be able to read.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>A trend, or
reversal or retracement of such, is only of real value if you can apply a good
money management system to it for extracting the loot.<SPAN
style="mso-spacerun: yes"> </SPAN>Identifying a trend will give you and
advantage, but it is the r/r/r that you apply to the trade that will give you
the edge, if it is worked out and applied properly.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>Trends and how
you play them take the whole argument back to position play or day trading.<SPAN
style="mso-spacerun: yes"> </SPAN>For me, the former is a way of
topping up pension funds and carving out wedges of money from a running bull
market – for as long as it lasts, which may be a long time yet.<SPAN
style="mso-spacerun: yes"> </SPAN>Day trading something like the bonds, is
a much more simple matter, requiring a grasp of how the market moves (trends and
counter trends during the day), spotting where it is likely to twist or turn and
applying a trading technique or money management principle, as a means of
profiting from it.<SPAN style="mso-spacerun: yes"> </SPAN>The only
‘skills’ (to use that much over used word) you need are the ability to assess
price action as it produces particular patterns in certain circumstances and
applying an entry and exit technique, according to a predetermined r/r/r<SPAN
style="mso-spacerun: yes"> </SPAN>The only ‘tools’ you need are a
good standard charting package, that allows you to set up different charts on a
workspace, with normal drawing implements – including the ability to measure
retracements.<SPAN style="mso-spacerun: yes"> </SPAN>Indicators and all
that stuff are simply not necessary, so you really do not need any sort of
sophisticated system, garnished with bells and whistles!<SPAN
style="mso-spacerun: yes"> </SPAN>Just good, clear charts, with tick
volume and a decent, reliable feed and a very good diary will all the dates of
reports and other matters that impact the bond market.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>After that,
trends and counter trends will fall into place very nicely.<SPAN
style="mso-spacerun: yes"> </SPAN>Just study yesterday’s price action on
the March T-Bonds on the attached GIF chart and you will see what I call a
$1,000 day.<SPAN style="mso-spacerun: yes"> </SPAN>From the original
breakout, the trend was straightforward, as indeed were the retracements and the
counter-trend trade.<SPAN style="mso-spacerun: yes"> </SPAN>The price
action and chart patterns were clear, both for entry and exit and at no time
were any stops in jeopardy.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>But this is
all a very simple approach, compared with sophisticated systems and indicators,
but it does require you to trade, actively, watching the market very, very
carefully and learning to believe what you see, not what you think it ought to
be doing.<SPAN style="mso-spacerun: yes"> </SPAN>The trends certainly have
higher highs and lower lows, etc, but it is the reading of the environment in
which they are taking place, which counts the most.</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>Hope this
helps some of the newer traders on the list</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US> </SPAN><SPAN lang=EN-US>Bill Eykyn –
still out of the market while Mr. Greenspan pumps up the volatility….</SPAN></P>
<P class=MsoNormal><SPAN lang=EN-US></SPAN><SPAN lang=EN-US><A
href="http://www.t-bondtrader.com";>www.t-bondtrader.com</A></SPAN></P>
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