FuturesTechs Blog

It never ceases to amaze me how many people cite Edwin Lefevre’s 1922 book “Reminiscences of a Stock Operator” as one of their all time favourite books on investing and trading the markets.

I am one of those people. I read this book at least once a year. However busy I am (and I’m pretty bloody busy right now!) I make time to re-read this classic tome.

So what’s all the fuss about? This book was written, as mentioned, in 1922. The author, Edwin Leferve, never traded a stock in his life. It is believed that he based the book upon interviews he did for a newspaper column with the legendary Wall Street trader Jesse Livermore, although Livermore isn’t named in the book. The central character is known as Larry Livingstone, and the book is his story, from rags to riches and back again, several times.

So it’s a story about a trader who made and lost loads of money almost 100 years ago. So what’s the relevance?

I’ve wanted to make this a blog subject for a while now, so when I re-read the book this time around I highlighted the “gems” that I considered were totally relevant to today’s markets. Here’s a few:

On the second page: “…there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again”.

If you look at our previous Blog article on the sentiment cycle you will see that we firmly subscribe to this view; that what we’re going through right now is NOTHING NEW.

We need the market to stop trying to pick bottoms and for those same bottom pickers to give up and turn outright bearish before we can make a bottom. The market needs to feel discouragement; tired of trying to find the bottom, resigned to the fact that we can head lower to who knows where. Then we’ll start to rally!!

How about this one; “…I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”

Or this; “…there is only one side to the stock market; and it is not the bull side or the bear side, but the right side”

How about “..in losing money I have gained experience and accumulated a lot of valuable don’ts”

Gems, all of them. New traders: You have to realise that you will make mistakes. Just make sure they don’t cost you your account. And learn from these mistakes. And “don’t” make the same mistakes over and over.

A classic problem traders of all levels of experience encounter is running losses but not running profits.

“They say you never grow poor taking profits. No you don’t. But neither do you grow rich taking a four point profit in a bull market”.

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight.”

One of the hardest things to do is to run a winning trade, beleive it or not, but when you’ve got trends akin to the sort of thing we’ve seen in Oil this year the real money has been made by staying short all the way back down from $147 (or $135, which is where we turned bearish).

I could go on and on, but I’m going to tie things up with a quote that is poetically relevant in the current climate, and adds weight to my loudest recurring rant of 2008: “Stop trying to pick bottoms”.

“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eights in the world”.

Thank you Mr Livermore/Livingston. I couldn’t have said it better myself!

As usual, keep safe in these markets,

Cheers,

Clive.

Technical Analysis is an essential tool if you are going to trade using CFDs or Spread Betting.

The vast majority of professional day traders use technical analysis in some way shape or form during their trading day. They are aware what the important technical levels are for the markets that they trade. some do this work themselves, some rely upon services like FuturesTechs, knowing that we’ve got an 8 year track record of providing this information to the bulk of the UK Pro trading community.

Many newbies to trading struggle with how to “structure” a trade. Hopefully we’ll shed some light on this with today’s blog post.

It’s all about the levels, and that’s what we do here at FuturesTechs each day: We look at the levels that the market may be looking at, where things may change, where the buyers may return after a sell-off, where the sellers may wake up if the market starts to rise. These are commonly known as support and resistance.

Support is the name given to downside levels; prices below here the buyers may have returned previously, or where they may return today. If we fail to hold support levels the bears are obviously dominating; not giving the buyers the chance to defend these key price levels.

Resistance is the name given to price levels above the market where there may be some”action”. Either we’re going to get to these levels and fall over, or the market should see a strong reaction if we break above them.

These levels are quite often something as simple as old highs and lows, however old they are. We have found markets reacting to levels from over 20 years ago. The market has a long memory, and with charts readily available to all and sundry there’s no excuse not to be armed with the important lines in the sand as you head into each trading day.

The best traders in the world react to a bunch of different things to put on their trades: They wait patiently for a piece of news to come out, or for a technical level to break or hold, or for the market to do a certain thing that they’ve been expecting. They wait patiently. Lots of money can be lost doing trades for the sake of it. Boredom or the need to be involved is a dangerous emotion that a trader has to deal with.

There is little point in trading in between technical levels. The levels are created because they are the prices where things changed previously. They are the “action areas”. Why mess around trying to put trades on in “no mans land”? If you want to buy the market, chose a support level and put your buy order at or above there.

If you need somewhere to put a stop order you can again use a technical level.

Here’s an example: We were bearish of the Eurostoxx 50 Futures today despite Friday’s gains. We had a bold resistance level at 2704. Our bold levels are the important ones. So if we’re bearish and the market rallies to a bold resistance we would suggest selling before the level with a stop above it. The high this morning was 2698….

If you had sold at 2690 with a stop ay 2710 (or our next resistance level at 2728, if you want to give it a bit more “breathing space”) you would have got short and never been far offside.

On the same report we have bold supports at 2640 (the overnight gap) then right down at 2467 and 2418.

So this is the bit that isn’t “harry hindsdight”, just in case you want to jump on the idea that I’m writing this after the event: I will look to cover the short trade at 2470, but if we hold 2640 today I would just get out and cover the trade for either a small profit or at worse nothing. I think we need to break 2640 today to give this trade credibility. In other words we are using another bold level (this time a support) to add weight to our trade. If we don’t break below 2640 then maybe the bears aren’t ready to push us lower just now.

IT’S ALL ABOUT THE LEVELS.

So If you’re just starting out trading, whether it be with a Spread bet account, or CFD’s, or DMA (Direct market access) I would urge you to make technical analysis part of your daily process, AND TO TRADE THE LEVELS.

Be Careful!