10 AM Morning Update for 9/23/2008

Please be aware, without respect to the EMF forecast,
Price action at this time is bearish suggesting potential
downside movement.

** ALERT  **  Time= 1005: The current price action is bearish.
Short positions taken on upside rallies may be beneficial
between now and the close.

RESULTS: +33 points

Pictures are worth a thousand words -

Here is an alert from today -

** ALERT  **  Time= 1040: The current price action
is bearish. Short positions taken on upside rallies
may be beneficial between now and the close.

It never ceases to amaze me how people put strange verbal terms to things that would otherwise be extremely painful.  Let’s take the trading term “Drawdown” for example.  What on earth is that supposed to mean?  I can tell you this.  When I lose money, I lost money.  It is just that simple.

You can call it anything you want, but somehow, calling it “drawdown” seems to make it all better again.  Yes, “drawdown” is a forward looking term and those of you who know me, know I approve of future thinking.  It is always the question, what is developing now, that makes the future likely to be as anticipated that makes all the difference in my trading.

If I am trading a trading system I developed, my first thought on parameter selection is what is the market condition likely to be in the near future?  Will it be more volatile?  Will it be choppy?  It is this kind of thinking that helps me to decide which systems I am going to be trading tomorrow and with which parameters.

I will run tests that show me how the parameters shift under various circumstances and I will anticipate this.  It is this kind of thinking that has made a huge difference for me; anticipatory thought.

But the term “drawdown” also carries with it, without regard to your method or its viability, the seemingly all saving idea that you will recover from where you are.  After all, it is just a drawdown.  Well, if it went down, it certainly will in all likelihood go back up, right?  After all, the great master did say, as you believe, so shall it be done.

So is “Drawdown” really a dangerous word to be using?   Yes, I believe it is.  Because it ignores that larger picture of what really is an efficacious approach to trading.  I think it is a conspiracy against newbie traders to keep them from realizing the big picture of money management.

If you really want to get real about it, go read this techno babble that detaches it even more from the experience (http://www.en.wikipedia.org/wiki/Drawdown_(economics)) of losing real money.  After getting your PhD in detached financial verbosity, you might be able to get a job teaching trading to a bunch of unsuspecting students to try to pay back all the money you lost trading in the real world ;-)

Traders have to deal with reality every day. If not winning, then you certainly are losing. It is just that simple!  Trading is the most basic game in the world, but it requires a solid understanding of oneself and the environment around you.  Challenge the terms that are being presented to you and the environment you operate in as a trader and free yourself from biases that can keep you down.

Great week! This must have been the most volatile week in a decade or two. S&P500 Emini futures were trading of up tp 4-5 million contracts a day!

We prediced last Sunday that the market would decline from Monday into the lows of Thursday and rebound from there.

Certainly the Federal govenment intervention in the stock market operation has coused the 100point+ rally in the last 2 days. However, our members were quite satisfied with 80-90 point gain by Thursday lows.

Another great week for EminiForecaster -

In an attempt to put the current financial crisis into perspective, today’s chart illustrates the 10 largest Chapter 11 bankruptcies in US history. As the chart illustrates, the bankruptcy of Lehman Brothers earlier this week dwarfs all previous US bankruptcies. The US government has taken the approach that some companies are ‘too big to fail’ as failure could have devastating systemic effects. In the case of Lehman Brothers, however, the bar as to what is too big has been raised - considerably.

I have heard people refer to the market being “overbought” or “oversold” for as long as I have been a student of the markets. To be sure, only one of the two terms has any credibility and that is oversold. There is one case for this, and that is when the market is trading at zero. That is oversold! It is the only real case. Since the market (S&P 500) is trading at 1250 as I write this, I guess that isn’t likely to occur today (or at any time in the near future for that matter).

Unfortunately, for those who wish to use the term “overbought”, it is important to note that the market has unlimited upside potential. So this case can never really occur. So there is no such thing as overbought at all.

I suppose people mean some kind of relative term when they speak in this way. In this manner, “overbought” translates to the market is high (higher than it was before). “Oversold” would translate to mean it is lower than it was before. Since the market alternates in a range a huge percentage of the time, one would conclude that such terms are even more un- meaningful than would otherwise have been the case.

Let’s look at it from the other side of the coin. For 1990-2000 the market remained overbought for a period of about ten years. I suppose there were occurrences within the minutia that could have been relatively higher or lower compared to the past, but what is the use of a term that draws your attention to the obvious.

That’s why I decided to coin a couple new terms, to put a new perspective on the whole thing. This is really quite exciting. A revolutionary new concept. My new terms (and feel free to use them widely to get the buzz going) are “Underbought” and “Undersold”.

Yes, I know, undersold is already in use. Well, not in this proprietary sense in which I intend its important new meaning. You see, “undersold” is the opposite of “underbought.”

So what is this “Underbought?” Quite simply, it is when the market has not raised enough to be where it will be in the future. This means “undersold” occurs when the market has not declined enough to be where it will be at in the future. So these important key terms carry a whole different kind of meaning to their (rather meaningless) counterparts “overbought” and “oversold.”

You see, “overbought” and “oversold” look at the past to decide where you are now. But underbought and undersold, look to the future to tell you where you ought to be. This is a huge difference! This is especially true since it is only the future price (with respect to where we are now, or have entered the market) that has any meaningful value to us at all!

I want to start a movement of future looking market participants that don’t dwell on the past. Let’s get over it and move on. The fact is the most successful investors in the world are forward looking market participants. They trade developing trends in the markets. They are anticipatory investors.

This means that most people who are not successful in the markets spend their time oriented to the past. Conducting “backtests” of data to see how the future will be. Ouch.
So I vow today to never say “overbought” or “oversold” again and give myself to the infinite future that stands before me. Its “underbought” and “undersold” from here on out baby!

Please join me in the revolution to make these important new trading terms a solid reality!

Let’s face it. Recently, the market is more anti-persistent than ever. It just doesn’t trend at all. If we can get a 2-3 day move in one direction, it is remarkable. Most of the time, it is just moving sideways. During these times money management becomes more important than ever; protecting the gains you have made.

When trading the forecasts from the EminiForecaster service, one of the first things I want to know is whether any key levels (from the updates section of the member’s area) have been hit during the week. If a key level is hit and a strong reaction occurs contrary to the forecasted direction, it tells me to get serious about my risk control.

There are really three components to the service that help users benefit the most. Many people believe it is just the G-lines (our forecasts). In fact, the forecasts we post on Sunday are just a generalized cycle we see going into the next week. Every little wave inside these forecasts is not intended to be followed to a “T.” It is a directional forecast and a graphical way of showing where we see the next market turn coming.

These two factors, direction and pivot time can be seen on the forecast, but due to the fact that the bigger wave is not seen on the weekly chart, we summarize the forecast in the updates section of the site.

Another factor that requires consideration is the management of gaps. When entering trades at or around large gaps in the price on the open of the day session, it is important to note whether the market is being driven by large participation into that gap. Breadth measures such as NYSE advancers/NYSE decliners can reveal much about this. Strong values can reveal there is wide participation supporting a gap. Another factor with gaps is the magnitude of it. When you see the market gapping over 1% on the open, it is a dangerous place. Often these gaps can run, but if they begin to fail, it is important to control your losses and preserve your gains as best you can.

It is also beneficial to know what is occurring on the news front. Lately though, it seems any good news at all is hyped into a short lived rally. This occurred several weeks ago when the revised GDP numbers were released on Thursday. The news releases can be found at the bottom of the training area of the site.

There is no doubt these news releases, with supporting participation can make our forecasts be off. If the story and participation is of sufficient magnitude, it can be by large margins too.
For those who trade on any time frame, we also recently added the updates/alerts feature to the platform. This is intended to help you to confirm if the forecast is running right at the current time. It can also be used as a standalone service, because it gives excellent forecasts in its own right. Forecasts that are shorter term than the weekly forecasted G-lines.

Used together, these update/alerts, in conjunction with the G-line forecasts and the Key levels, you really have tremendous flexibility as to how you can use the service to your benefit.

As we have mentioned in other articles, it is paramount you trade in a manner consistent with your own personality. These tools make it possible to do that relatively easily. You still have to manage your risk prudently though.

As mentioned, always be sure to tighten up as the market hits key levels, in strange gaps and at forecasted turning points. Often it appears the market is not following the forecasts early in the week and it comes back to be right (snap-back). Often when this occurs, it can be due to one day being off out of the five in the forecast. Because the market has been anti-persistent, these things are more important than ever to manage your risk and identify where things are not going your way in advance.

When using the service, be sure to read the updates carefully. We might describe an aspect of the G-line that will be important to you later in the week. We never put comments in there that are idle babble, so be sure to get the most of it.

Being a successful trader requires a lot more than just buying and selling. It is a battle with the forces of the market and a battle with you to deal with your own fear and greed. To make the right decisions in this context is tough to say the least. EminiForecaster provides the tools to help you be most effective in this way and to help make your money management decisions clearer.

We have been running this new feature - morning alerts for about two weeks now and the response from our members is great.

First update comes out at 10 am and shows what kind of day it is fixing up to be and then usually at 10:05 or later we alert our members of a long or short entry for the rest of the day or until the satisfactory profits are reached.

Here is an example of today’s alert with a results graph (click to enlarge) -

and here are some more examples from the past 2 weeks -

Of course this tool is not perfect and here are a couple of losers -

Here is how you can use Daily Guidance Alerts to help you trade -

- Do not trade against the alerts

- If the alert corresponds with the G-Line for that day you have a higher probability of a successful trade

- Gives you overall direction of the market and predicts the direction for the rest of the day

- In today’s volatile markets you can pick up 10-30 points a day

- Can be used for people who just want to trade once per day

- Losers are small and stops can be used

- Options traders can benefit greatly from our alerts as well

- We make improvements to the alerts based on your input, so when you join our team you too will have a hand in further development of this feature

If you still wonder exactly how this works here is a corresponding video recorded by Rob 2 weeks ago for our members, since then there have been some changes and improvements to the alerts -

By the way the forecast for this week is working out great, I won’t share the details but let’s just say we are nailing it!

To take advantage of the new feature and our G-Line forecasts sign up today -

September 16th, 2008. I don’t like to brag but lately too many traders have been getting hurt in the markets and I think it is unfortunate. Today for instance was one of the most volatile days I can remember - AIG opened below $2, a day after a 4% sell off, FED meeting, bankruptcies, well, you know the rest of the story.

As you know I trade all over the place, without stops, indicators or other clutter.

My only tools that are available to everyone are EminiForecaster.com G-lines and MarketDayTreaders.com G-signals - that’s it.

Having said that, today, I was able to outperform myself! When volatility kicks in I reduce the number of contracts I trade, sometimes down to only 1. This is good because I know I will get all the benefits (and risks) of a volatile day like today. Just look at today’s 5 minute chart and calculate an average bars’ range, some 20 months ago that was the range of an entire week!

Anyway I traded like a maniac trying to beat the signals using my intuition and experience. And here are the results:

- 10 round trip trades

- $4,500 or 90 ES points

- quit trading for the day at 3pm EST

- made about 33% on that particular account

Here is how G-Signals from MarketDayTraders.com performed today (with a 5 point stop) -

click here for more history charts

Not bad, as you can see I took advantage of some of the trades that were recommended -

To learn more about G-Signals go here http://MarketDayTraders.com

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