FuturesTechs Blog

For this blog post we welcome a guest writer, Stephen Desborough, who has worked in the Futures industry for many years as a trader and is now a Performance Coach. He has helped many traders with his in depth knowledge of methods like NLP, approached from a traders point of view.

stephen@performance-coach.co.uk is his e-mail address if you wish to contact him.

Thanks for your contribution, Steve, and Season Greetings to you all!

Cheers,

Clive.

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As the nights and the year draw in, it is a perfect time to reflect back on 2008. As you look back, hopefully you will be able to relish in your accomplishments and the growth that you have made both professionally and personally.

Did you set any goals for 2008? Did you achieve all of the goals that you set for yourself? If for some reason you’ve fallen short, then ask yourself, “why?”. Is there something that you could have done differently, or is there something that you should have done, but for whatever reason you didn’t?

During this special time of festivities, and a well deserved break, spend some time brainstorming the past year and the year ahead. What do you want to achieve in 2009? What is important to you? What are your goals? How are you going to achieve them?

In 1953, researchers surveyed Yale’s graduating seniors to determine how many of them had specific, written goals for their future. The answer: 3%. Twenty years later, researchers polled the surviving members of the Class of 1953 — and found that the 3% with goals had accumulated more personal financial wealth than the other 97% of the class combined.

Some of the reasons that many of us do not set goals:

• Not being serious about your goals. Until you become completely serious about your goals, your chances of success are limited.
• I don’t know how to clearly set out my goals. “As I don’t know how to do it or what I really want. I wont bother”
• The fear of failure. “What happens if I do not achieve my goals?”
• The fear of success. “How will I cope with success and will other peoples perception of me change”

If you have no goals, you are not going anywhere. This is a key reason why people do not achieve their full potential.

So it is important to GAIN DIRECTION IN YOUR LIFE AND DEFINE YOUR DESTINATION.

Even people who do set goals, do not always get the result that they intended. Here is a technique that will help you towards setting and achieving your goals. The SMART criteria.

• S. The more SPECIFIC, that you make your goals the more chance you have of it happening.
• M. What has to happen ? what do you have to see, feel, to know, so that you can MEASURE your success ? Make sure that your goals are MEANINGFUL to you.
• A. State your goal in the present tense. AS IF you are already living the ACHIEVEMENT of the goal.
• R. Make sure that your goal is REALISTIC to you. What degree of certainty do you have to make this goal happen.
• T. Have a precise TIME of when you will have achieved the goal. Make sure that your goal is what you do want as opposed to what you don’t want. eg. “I don’t want my business to struggle next year”. change to “I want my business to flourish next year”. This is stating your goal TOWARD what you want to achieve.As your coach, it is my goal to help you achieve your goals. If you are serious about what you want in 2009 please contact me. stephen@performance-coach.co.uk

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!

If you are a regular reader of our reports, or if you’ve seen me on CNBC any time in the last few months you’ll know that we’re staying right out of the rush to pick a bottom on this equity market sell-off, a rather thankless task that so many people appear to be happy to do. This is how it works: If you are a market commentator and you’ve been calling the bottom all the way down, you may as well carry on, because at some point you’ll be right. Then you can say for the next three years “I picked the bottom”. It upsets me that these so called experts are happy to continue to give dud advice to people just to try and save their own face.

Here’s something else: The market will only bottom out once all of these people STOP calling it. When the towel is thrown in by the majority, and most commentators start talking about doom and gloom downside targets, is when we’ll get a bottom. Maybe that’s why Hugh Hendry was given an entire hour on Channel 4 last night to pick over the wreckage of the sub-prime crisis. It was a great bit of TV and you can’t but love the man!

As per last week’s Blog on the sentiment cycle, the bottom will most likely come when people give up trying to call it, and when the market resigns itself to a future of pain and misery. So we’re probably not quite there yet…

I looked back at our analysis in 2003 and saw that we were around 400 points off the low before we called started saying bullish things.

The DAX is certainly well off the lows over the past two sessions, on the back of the world’s most spectacular short squeeze. VW shares jumped from 200 Euros to 1000 Euros in two days. I don’t even want to start to explain the ins and outs so here’s a link to the story on Bloomberg’s website.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aWeWGIPhKfnk&refer=europe

The upshot is that Volkswagen has now become the world’s largest company by market cap on the back of a short squeeze. This story will only get bigger (although I don’t think VW’s market cap will!) and we’re bound to hear some fallout in coming days or weeks.

One wry (and somewhat tongue in cheek) observation on this shenanigans: We won’t see a financial stock reacting higher like this in the coming months, because the shorts have been banned…

Finally, In my spare moments right now I am doing something that I force myself to do once a year: I am re-reading “Reminiscences of a Stock Operator” by Edwin Lefevre. THE BEST BOOK EVER ABOUT THE MARKETS. i only got to chapter 1 when I read this quote:

“Another lesson I learned early is that 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 to-day has happened before and will happen again”.

Say no more…

As always my best advice if you’re trading these markets is “stay safe”.

Cheers,

Clive.

Things have been a bit frantic since the last Blog post, both for myself and the markets! As well as speaking at the IX Investor Show and the Trading Symposium I have also finished the first draft of my up-coming book; “Candlestick Charts. An introduction to using candlestick charts”. I just hope there isn’t someone round at Harriman House right now pulling their hair out wondering how the heck they’re going to make it into a book!

The events were well attended and both pulled in a crowd of around 200 people to listen to my ramblings on Candlesticks.

Having spoken in front of these sort of numbers in seminars, surely today’s appearance on CNBC would be a walk in the park.

But my first appearance on TV turned out to be a rather nerve-racking experience! Let’s hope that was just because it was the first time, and let’s hope they invite me back again.

The other thing I hope is that the calls I made work out okay!

In the Eurostoxx 50 Futures I (rather nervously, with a waver in my voice) said that last weeks break of 3387 spelt trouble, especially since this level turned resistance and capped upside subsequently. This is a key line in the sand and if we can retake this level the hounds can be called off. Otherwise things still look very bleak.

In CME Group Wheat (still called CBOT Wheat by most people despite the recent merger) we’ve seen a failure at a key Fibonacci level (955) in recent days and this now looks set to head lower to retest the year’s low at 730 (trading 845 at the time of writing). I had managed to gather myself a bit by this time and was even starting to make some sense!.

Finally I looked at the Eurex Bund (by this time I was breathing normally and everything) where the short term has been a tad messy, but the Medium Term outlook remains firmly skewed towards the Bears.

Overall I think it went well, and I’m looking forward to the next time I get on there, and this time I’ll tell people beforehand. Today I was more than happy to keep it quiet!!!

Here’s a link if you want to view it…

http://www.cnbc.com/id/15840232?video=782776257

We have had our new website available for around 1 month now and we are starting to gain momentum for our new “per end user” offering. Private Investors, CFD and Spread Bet traders are starting to sign up and see the value of our service.

In recent days we’ve seen some interesting moves in the markets:

Gold Futures have turned over and after a plethora of sell signals yesterday we went Bearish this morning, just before the market sold off sharply.

Brent Crude Oil Futures has seen a big sell off but we’re certain this is merely a buying opportunity.

We have remained Bearish in the short term on Equity markets but our patience is being tested on this, particularly in the DAX Future, never one to willingly play the game!!

Interestingly today’s early high/failure in the S&P 500 Futures could be key and suggests that the market can head lower in the short term.

Login for a free trial to see our thoughts on these movements in more detail.

So to a question we’ve been asked a few times of late: Where did we appear from?

We have been servicing professional traders for 8 years now. The company formed in March 2000, soon after the closure of the LIFFE Floor. The traders who congregated on the LIFFE Floor headed up to different offices around this time, and suddenly they needed an edge, they needed information. I always had a string of traders who used to come and have a chat about the charts when I was based on the Floor, and so it was a natural progression to turn this into a daily commentary. I started by sending out a daily report on Bunds and T-Notes, and it grew from there. We grew with the Industry. Proprietary trading accounts for a good percentage of the daily Volume on exchanges like LIFFE and Eurex.

We wanted to expand our horizons beyond this arena, though, so it was a choice of Banks and Hedge Funds or Private/Retail Customers. Which way to jump!? We have found over the years that “bean counters” at the Institutions can cause problems for services like us, because they see a lot of free technical analysis being provided by the large brokers vying for their business. “Why pay for something that you can get for nothing?” -they say.

So we came up with the idea of a Members website where the reports can be viewed securely, on a “per end user” basis, which allows us to significantly reduce the price without upsetting our existing professional clients who pay for a “Site Licence” and the ability to distribute the reports amongst their traders.

We encourage you to take advantage of the chance to utilise this professional trading tool in your daily trading routine.

There’s plenty going on around the traps this week. Let’s just go through a few highlights:

Oil is the one getting the headlines, with ICE Brent Crude getting up to $135 before selling off hard today. The NYMEX WTI* has done a similar thing; selling off $5 from a high just above $135 over the course of today.

As of this moment we wouldn’t be calling a top in this one despite this volatility. As we said last week, one swallow doesn’t make a summer. The lack of reaction to last week’s Doji Candlestick pattern proved that!

Saying that we might not be far away from a capitulation (it’s certainly starting to feel that way), but trying to pick the top of a market like this is a dangerous and foolish game.

Equities looked toppy last week, as we flagged in the Blog, but it took a few days before we turned over, although the DAX Future held key psychological support at 7000 today, and the FTSE Future is holding support at 6139.5, the last higher low.

But it’s Debt markets that are catching my eye this week. We have seen a sell off of 90 ticks in December ‘08 Short Sterling Futures. In simple terms that means a swing of rate expectations for December of almost a full percentage point. In other words this week the market has decided that there’s little chance of more rate cuts from the MPC, a sign that maybe things are settling down a bit. This is a quite spectacular move for a contract that is usually pretty “steady as she goes!”

For those of you who are finding trading things like the DAX and Oil a little precarious and volatile you can often put good directional trades on in these Interest Rate Futures, as the Central Banks try not to cause too many surprises; flagging their intentions with their rhetoric as they go along, and guiding the market if expectations are going awry.

Many professional traders trade huge amounts of size in these contracts every day. The equivalent in Europe is the Euribor, and in the US it’s the 3 month Eurodollar Futures. They are among the most actively traded Futures contracts in the world.

Check with your Spread Bet provider how wide their spreads are on these products. They should be quite tight, because they don’t move about quite as much as things like Equity Indices, Gold and Oil.

Let’s finish up by clearing up some confusion: We produce a report each day on NYMEX WTI.

NYMEX is the name of the Exchange where it is traded; the New York Mercantile Exchange, one of the few remaining “open outcry” Futures Floors (due to be taken over by the CME Group). WTI stands for West Texas Intermediate. This is the Benchmark Crude Oil in the US, and is also known as “Light Sweet Crude”.

Happy Trading,

Cheers,

Clive.

The brave new world for FuturesTechs is welcoming new traders into the fold. Whereas we’ve traditionally catered for Professional Traders and Brokers, with our new “per end user” website we can now be accessed by a wider audience.

But a question we’re being asked quite a lot by new subscribers is “What is the Bund?”, amongst other things! (Bobl, Schatz, Euribor, Short Sterling, GasOil, to name but a few!).

We have been writing Technical Analysis in the Bund Future right from the start. It is one or original reports from 2000 when we first set up. It has an interesting history actually, because Bunds were traded on the LIFFE Floor until about 1999, at which point they suddenly migrated to the DTB, now called Eurex, which was one of the early pioneers of Electronic Trading. As it was one of the biggest Futures contracts in the world at that time (and still is today) this was quite a coup, and can be classed as the death knell for Floor traded Futures, not just in London, but around the world.

As I said above the Bund Future is one of the biggest contracts in the world, regularly trading over 1 million lots per day. It is the benchmark for 10 year Bonds in Germany. Even though Europe “became one” in 2002 the financial markets, still to this day, reference the Bund for transactions in the European money markets.

The 5 year Bond Futures is the Bobl, and the Schatz tracks the 2 year part of the curve. All three trade very good Volume each day and are excellent contracts to look at if you are accessing the market directly. By definition the shorter dated contracts have less volatility.

When choosing a contract to trade (direct to the market as opposed to Spread Betting) Volume and Volatility are the two things you need to look for. Volatility is specific to your needs: For some people the DAX Future is a rampant animal that they would never dream of trying to tame. To others it’s a perfect challenge and the Volatility is welcomed.

But Volume is important because you need to be able to get out of a trade if it’s going against you, and if you trade something that’s very thin you may have trouble doing this.

So to new visitors of our Members area I urge you to have a look at these products and discover if there’s something there that suits you.

Most spread betting firms have quotes for these contracts, and the spreads will likely be reasonably close, because one of the things the Spread betters base the size of their spread upon is their ability to “trade the other side” if they want to.

I’ve just spent the last 5 days in Las Vegas; my first time there. Wow! What a place. I was immediately impressed with the sheer size of it all, especially casino complexes like Caesars Palace and the MGM Grand. While the main reason for the trip was purely for pleasure I couldn’t help but draw a few comparisons between trading the markets and playing the tables. I’m sure we’ve all done this before but here are a few thoughts I had. I’d love to hear any thoughts any of you have ever had on the subject!

The House always wins in Vegas. That was pretty obvious from the size and scale of things, and the money that had been spent. We were staying at the Ballagio and it was clear that they weren’t making their money on the “all you can eat” buffet breakfast, not with the amount of food that some people had piled onto their plates, sometimes for several trips in a row!

The house in the case of trading is the Exchanges, or sometimes in the case of smaller punters, the Spread Bet/CFD firms. But the Exchanges can rightfully argue that they haven’t, as is the case in Vegas, invented an uneven playing field in which they will always come out on top. They are there to provide the playing field, which is “level” for short traders and long traders, all of whom simply pay commission and clearing fees. In other words they’re providing the hotel and gaming-room, but not taking money out of the trading.

It’s a widely know fact that spread bet firms (and CFD firms, which is maybe less widely conceived) do sometimes take the punters bet and don’t “lay it off”. They have structures and models in place to manage the risk they take on. I am going to write about this at further length some other time as it’s one of the most contentious issues in this arena, I feel, but it shouldn’t be: The retail customer, in the main, is not being ripped off by the Spread Bet firms. After all, it’s you that decides when you want to buy and sell something, and you’ve been told the parameters with which to do this way in advance, which is where there is a firm comparison with the Casinos.

The big casinos on the strip are merely there to serve people’s insatiable appetite to chase the dollar. They facilitate the dream. The fact that a quick look around you at any of these establishments should tell you straight away who’s winning out of the deal doesn’t put you off: You still fancy the idea of walking away one evening with pockets full of chips.

There are countless books on people who have beaten Vegas, mostly to do with counting Cards in Blackjack. I read such a book; based on a group of MIT students with exceptional mathematical brains who worked tirelessly to devise a system that told them when the deck was predominantly filled with high cards; a prime opportunity to bet large as the chances of scoring 19 or 20 and beating the house increased dramatically. One line that interested me in this particular tome was that you didn’t need to get consistently high cards to win; you had to get higher cards than the dealer.

The key word for me from the above paragraph is “system”. Obviously these guys were exceptionally bright, and the system was extremely complex, and even then it wasn’t guaranteed. But at least they had a system. I was amazed a few times while I was watching or playing the tables the number of people, particularly playing roulette, who were putting on too many chips per spin of the wheel for the venture to ever be profitable. They clearly didn’t understand the odds, and were doomed to fail on this basis. There’s a valuable lesson that can be translated to the markets; know your odds. Know your market. Have some sort of system.

This is where I think technical analysis always scores big. It can allow one to develop a systemised approach to decision making for traders. When you are developing a system consider the following: You need to find a way to enter trades, and then potentially have a different system for running a trade for maximum profit. There’s no point in developing a fantastic way of spotting entry points if it then fails to tell you when to get out.

Finally back to Vegas: I noticed more than anything that the gaming rooms were highly charged and highly emotive places, with people making and losing money all the time. This got me thinking about human emotion, and how this can have such a profound effect on decision making. I did it myself a few times: If I was on a losing run at Blackjack I’d simply put a bigger bet on because I needed to get out of the rut. Clearly this was an emotionally based decision, and clearly it was wrong (judging by the amount of times it failed!!!). So my final thought is this: Emotion is inevitable, whether you’re playing the markets or playing Craps. Your best chance of winning is by sticking to a system that reduces the emotion. I’ve seen many people write that technical analysis allows you to eliminate the emotion from trading. Rubbish. You cannot eliminate emotion, but you can find a way to manage it so it doesn’t take over and end up costing you chips… or is that ticks!!