Commodity Traders Club NewsÔ

Think in Probabilities - Rick J. Ratchford

Successful trading requires that you think in probabilities. Keep risk low while positioning yourself into trades with the best outlook for profit is key. To do this requires that each possible trade be evaluated carefully to determine its probability for success.

There are several items a trader should consider before taking a trade setup. One, you may wish to consider the current trend. This is a big one, and yet many will still take unnecessary chances in the hopes of hitting the big one.

CONSIDER THE WEEKLY TREND PATTERN

For example, there will be trades that you are considering from your daily charts based on some indicator or indicators you are using. But do you consider the weekly chart pattern before considering to take that trade?

Suppose that the weekly chart has been forming lower weekly swing tops and lower weekly swing bottoms. Which then would be the better of the two types of weekly swings to trade setups from?

Would the probability of success be higher if you took your trade to go long following a weekly swing bottom or weekly swing top? Obviously, the probability is HIGHER if you trade off the weekly swing top as your direction indicator because the weekly trend is obviously trending down. The time between weekly swing tops to bottoms will normally be much longer and larger in price points then the time between weekly swing bottoms to tops, which in this example would represent a bear trend correction only (normally shorter in pattern).

If you notice the weekly swing chart showing higher weekly swing tops and weekly swing bottoms, then naturally the setups that allow for long trades from weekly swing bottoms would likely provide the better trade setups. This is an easily way to determine PROBABILITY of one type of setup over another.

CONSIDER SUPPORT AND RESISTANCE

Another excellent indicator to evaluate PROBABILITY of any given setup is to note whether the setup has found support or resistance at some price level that you are able to confirm. For instance, suppose you have a Sell Setup based on your indicators. Why not see if this setup high is at resistance you can verify? Try applying a few of the tools available to do this, such as Fibonacci Retracement ratios or noting prior market tops and bottoms, trend lines, etc.

Suppose you apply the Fibonacci Retracement to the most recent range (from a prior market top to bottom). You note that your Sell Setup high is at 62% of that recent range. Here, you are able to verify resistance, thus indicating that the PROBABILITY is higher this Sell Setup is likely to result in a good short.

CONSIDER WHEN YOU GET YOUR TRADE SIGNAL

There are times where it is wise to consider sitting out of the market even though you have a trade signal based on your indicators. For instance, if a report is due out the next day, unexpected things can occur shortly after you enter your trade. Markets can act wild on any given day, but oftentimes after a report has been released. You can increase your PROBABILITY of success by avoiding these times for a trade.

Holidays also pose problems for the trader. Often the market will have very little liquidity and price action is narrow. The day following the Holiday can present surprises you would rather not have.

CONCLUSION

A trade setup by itself simply states that you have the green light to place a trade. It does not in itself state that the trade will be filled or for that matter profitable.

Having a Buy or Sell setup is really but the first step in deciding whether to take a trade. It is in your best interest to spend just a few moments and see if the PROBABILITY for a successful trade outweighs the possibility of a loss. In addition, also consider the risk exposure (the amount of money at risk between where you would be filled and possibly stopped out initially) along with the PROBABILITY. If the PROBABILITY is really in your favor as you note the weekly trend pattern, support and resistance, and that the time period your setup falls in, you may be able to take setups with a bit more risk points wise than you would with less PROBABLE setups.

No trade setup should be taken lightly. We are talking about our accounts here, to make them grow over time, not shrink. If you want to make a success of your trading, treat it with the respect it deserves and requires and take the time to evaluate each setup before you call your broker. By doing your due diligence in this respect, you increase the PROBABILITY of becoming a very successful trader.

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CAPITALISM - Basil Venitis

Capitalism means complete freedom. It's the opposite of statism. Statism advocates big government, whereas capitalism advocates infinitesimal government. However, capitalism is different from anarchy. In capitalism we have the rule of laws, whereas in anarchy we have the rule of gangs. In pure capitalism, all property is private, including streets and schools.

All human relationships are voluntary. Voluntary charities take care of the destitute and unable. Voluntary contributions cover the small expenses of the infinitesimal government. There are no government regulations and controls. The best way to control is to give up controls entirely.

The invisible hand of market takes care of everything. The dollars and euros spent are the best votes casted.No country has ever tried pure capitalism. USA was very close to capitalism during its first century of independence. However, the antitrust Sherman Act of 1890 destroyed the path to pure capitalism. This stupid act tried to abolish monopolies. But every body is monopolist as we all sell a unique product that reflects our style. There is no pure competition, there is only monopolistic competition. Nobody can duplicate my speeches and seminars; therefore, I have monopoly on Basil Venitis seminars.

Everybody bares his soul on his products with his personal touch. Everybody is a brand!Inequality is a gift from God. Some people are born rich, some beautiful, some smart, and some stupid. Variety, diversity, and differentiation bring life. If all humans were equal, they would all be dead. Nothing moves with equality. There has to be some gradient for movement. Capitalism is the most efficient system to take advantage of inequality.Unfortunately, in most countries now, we have mixed economy. The state of this system is a war of pressure groups and pull peddlers. The government tries to relieve all the pressure by overspending, printing extra money, devaluing the currency, worsening the business cycle, creating hobgoblins and wars, and fooling the people. It's a real mess, a mad house. Mixing statism with capitalism is like mixing poison with food; you end up with poison. Manipulation of money supply by the government brings recessions and depressions. This manipulation brought the infamous stock market crash of 1929 and the great depression of 1932.

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Reply from Issue 79 - From Phil M

In reply to the question from Mark about daytrading spot currencies and FOREX brokers (Issue 79, March 2003), the good news is that the Commodity Futures Modernization Act of 2000 (CFMA) now requires FOREX brokers who solicit retail traders to register with the NFA and be subject to regulation by the CFTC. This new legislation has already made much progress in cleaning up the "bucket shops" that were operating as FOREX brokers without any governmental oversight.

So as you evaluate and compare FOREX brokers for the usual features (commissions, services, etc.), also be sure to perform a search on the NFA's web site to verify the broker's registration status. The web site address is https://www.nfa.futures.org/basic/search.asp. Do not open an account with any firm unless they are in good standing with the NFA.

Besides selecting a FOREX broker, even better advice I can offer is not to trade the spot currency market unless you are a seasoned trading professional. FOREX instruments offer the highest leverage and highest risk of any trading instrument. So a FOREX trader should already have a strong track record of success trading futures or equities before even THINKING about promoting himself to a FOREX trader. Happy trading

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Bull or bear Bond market? I don't care - Keith Kinkelaar

As a short term trader, my opinion with regard to long term future market direction should be taken with a grain of salt. I'm more concerned with attempting to capitalize on quick moves that historically have a habit of repeating themselves, than with long term economics and overall trends. Frankly, I don't care where Bond futures are going, only that they exhibit behavior that is a historical precursor to price moves on which I may be able to turn a profit within a few days or less.

I look for patterns in the price of Bond futures that when combined with the direction of CRB index futures (an inflation indicator with a fundamental correlation to Bond prices) provide a historical bases for risking a trade. I then incorporate precise entry and order criteria that look for a final confirmation that history is likely to repeat itself.

Included in the above entry criteria will many times be a requirement that the open on the day I intend to take a trade, be in a particular position with regard to the open, high, low, or close the day before the trade. This "next open", as it is known in some backtesting circles, is the result of work done by Larry Williams and Ralph Vince back in 1986, and is the most current piece of market information available to end-of-day traders. In my opinion, it's also one of the most valid and valuable. I digress though, as none of this answers the question of where Bonds are going. So, for what it's worth, following is my opinion in a nut shell.

I think a lot depends on whether the stock market can maintain levels achieved as a result of the war rally. An extended infusion of cash in equities could give a much needed boost to the economy. However, if that cash does not result in positive returns for short to mid term speculators (something that I believe has to happen to bring long term investors back into equities), we could see another extended flight to the quality and safety of bonds that may even surpass recent levels.

If Mr. Greenspan is right in his opinion that war uncertainties have been preventing growth in the economy, none of the above will be a concern. I have my doubts though, as I haven't seen many forward looking indicators with much better than flat numbers. At this point, if forced to make a long term bet, I'd start looking for an opportunity to go long 30 year Bond futures as soon as an end to the war with Iraq appears to be at hand.

Editor's Note: Keith may be reached at Old Maples Trading Company, LTD https://backtesting.biz

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TAX REVOLT - Basil Venitis

Have you ever added up all the taxes, direct and indirect, you are paying? It's not just your income tax. You also pay sales taxes. All the corporations transfer their corporate taxes to their clients; in other words, you also pay the corporate taxes by paying higher prices for their products. You also pay for medicare you never use. Your also pay retirement taxes that most of it is wasted by the state drones. You also pay for the tariffs in the form of higher inflation. Do not also forget your time and agony in filling those tax forms and complying to stupid state regulations.

So, when you add all these things up, you will find out that the real tax you pay is not 30% but at least 80%.

Just think about it: your government grabs 80% of your money at gunpoint. If it is not armed robbery, what is it? This state robbery is worse than the hit-and-run robbery. At least the criminal knows he did something wrong and he runs; on the contrary, the state adds insult to injury. The criminal does something illegal and he knows it. The state does something immoral but it pretends it does not know it!

The situation deteriorates year after year. No matter who gets elected, taxes grow like cancer. We have reached the point of no return, where we all have to join the underground economy. We all have to resist the tyranny of taxes. We have to avoid and evade taxes as much as we can. It is our moral duty not to finance the #1 terrorist institution called government.

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