Finally momentum started September 30, 2005
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Tight trading range for the past 2 weeks. Finally get to see some movement.
The WCCI’s Fortune Teller September 22, 2005
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The candlestick with arrow pointing is your fortune teller, price is exhausted and we have a HFE saying SELL!
ML+WCCI Triptych September 19, 2005
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Woodies CCI Settings
H4: 20 period
H1: 20 period
M15: 14 period
Ten most important rules of technical trading September 17, 2005
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John Murphy, is a very popular author, columnist, and speaker on the subject of Technical Analysis. John’s “Ten Laws of Technical Trading” is the best guide available anywhere for people who are new to the field of charting. I urge you to print out this page and refer to it often. If you find this information useful, consider subscribing to John’s Market Message Service.
Which way is the market moving? How far up or down will it go? And when will it go the other way? These are the basic concerns of the technical analyst. Behind the charts and graphs and mathematical formulas used to analyze market trends are some basic concepts that apply to most of the theories employed by today’s technical analysts.
The following are John’s ten most important rules of technical trading:
1. Map the Trends
2. Spot the Trend and Go With It
3. Find the Low and High of It
4. Know How Far to Backtrack
5. Draw the Line
6. Follow That Average
7. Learn the Turns
8. Know the Warning Signs
9. Trend or Not a Trend?
10. Know the Confirming Signs
1. Map the Trends
Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale “map of the market” provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you’re trading in the same direction as the intermediate and longer term trends.
2. Spot the Trend and Go With It
Determine the trend and follow it. Market trends come in many sizes — long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you’re trading the intermediate trend, use daily and weekly charts. If you’re day trading, use daily and intra-day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.
3. Find the Low and High of It
Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old “high” becomes the new “low.” In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies — the old “low” can become the new “high.”
4. Know How Far to Backtrack
Measure percentage retracements. Market corrections up or down usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci retracements of 38% and 62% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33-38% retracement area.
5. Draw the Line
Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes.
6. Follow that Average
Follow moving averages. Moving averages provide objective buy and sell signals. They tell you if existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent. A combination chart of two moving averages is the most popular way of finding trading signals. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day. Signals are given when the shorter average line crosses the longer. Price crossings above and below a 40-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market.
7. Learn the Turns
Track oscillators. Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a market trend change, oscillators often help warn us in advance that a market has rallied or fallen too far and will soon turn. Two of the most popular are the Relative Strength Index (RSI) and Stochastics. They both work on a scale of 0 to 100. With the RSI, readings over 70 are overbought while readings below 30 are oversold. The overbought and oversold values for Stochastics are 80 and 20. Most traders use 14-days or weeks for stochastics and either 9 or 14 days or weeks for RSI. Oscillator divergences often warn of market turns. These tools work best in a trading market range. Weekly signals can be used as filters on daily signals. Daily signals can be used as filters for intra-day charts.
8. Know the Warning Signs
Trade MACD. The Moving Average Convergence Divergence (MACD) indicator (developed by Gerald Appel) combines a moving average crossover system with the overbought/oversold elements of an oscillator. A buy signal occurs when the faster line crosses above the slower and both lines are below zero. A sell signal takes place when the faster line crosses below the slower from above the zero line. Weekly signals take precedence over daily signals. An MACD histogram plots the difference between the two lines and gives even earlier warnings of trend changes. It’s called a “histogram” because vertical bars are used to show the difference between the two lines on the chart.
9. Trend or Not a Trend
Use ADX. The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend. A rising ADX line favors moving averages; a falling ADX favors oscillators. By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.
10. Know the Confirming Signs
Include volume and open interest. Volume and open interest are important confirming indicators in futures markets. Volume precedes price. It’s important to ensure that heavier volume is taking place in the direction of the prevailing trend. In an uptrend, heavier volume should be seen on up days. Rising open interest confirms that new money is supporting the prevailing trend. Declining open interest is often a warning that the trend is near completion. A solid price uptrend should be accompanied by rising volume and rising open interest.
Technical analysis is a skill that improves with experience and study. Always be a student and keep learning.
– John Murphy
Example trade on WCCI+Median Lines September 14, 2005
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30mins timeframe with 20 period CCI.
World’s most successful trader Paul Rotter trades with CCI September 9, 2005
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Meet the Flipper
Is eight figures a realistic goal? It has been done by private own account traders for years. Paul Rotter from Germany, 32 years old, is one trader that has made €50-60+ million ($65-78 million) per year for 10 years trading the most liquid contracts at the biggest futures exchange in the world, Frankfurts Eurex debt futures, primarily the Bund contract.
In 2003 I received an email from a former Man Financial broker in London who said, “One of our private customers has been the highest volume trader on Eurex for the last 8 years. He trades approx 3 million lots a month and makes himself €50 million a year, which he has apparently been doing for the last 10 years.” In 2004 I learned that it is Paul Rotter. He is notoriously called “the flipper”.
The bottom line is there are other traders, we never hear about, making 8 figure profits. If Rotter’s trading style did not attract attention then we would have never heard of him. If Rotter and others can do it, then maybe you can to. Remember, trading is very risky and you will lose all your money if you do not know what you are doing and when to do it. So please do not trade unless you are ready and willing to accept and take personal responsibility for the outcome.
In January 1998, Kinski, Rotter and some other traders formed a Dublin-based prop-trading firm, Greenhouse Capital Management.
Rotter’s balls-to-the-wall modus operandi helped Greenhouse prosper, but not without some tense moments. The firm began life with $1.3 million in seed capital and featured, in addition to Kinski and Rotter, two other standout own-accounters, Pino Curcio and Florian Albrecht, the latter one of Rotter’s closes boyhood pals. As a unit, they worked well together, though Rotter was clearly the star. “It was do or die,” Kinski recalls. “We knew Paul would have these large positions — in one day we could have been out of business.”
By the end of its first day, Greenhouse was up $526,000. Within three months the firm had made $6.5 million, though not without ruffling some feathers. “Paul has sometimes played a controversial role,” Kinski acknowledges. “Some traders didn’t like him because he was changing his position so quickly.” In 2001, Rotter formed Rotter Invest and eventually moved his operations to Zug, Switzerland, an affluent town that’s home to its share of traders…”
The World’s Most Successful Trader
Paul Rotter – aka “the Eurex Flipper”
Paul is arguably the single largest and most succesful individual futures trader on planet Earth, executing trades on the German Eurex exchange primarily in the Bund, but also in the Bobl and Schatz interest rate futures. He trades between 200-300,000 roundturns daily using the X_Trader platform, and clearing through GNI Touch.
Every trader can aspire to imitate Pauls success as he is proof that it IS possible for a small trader to build on his success and grow into the biggest most active speculator around.
Interview introduction (translated from German language interview with Traders Mag):
Paul Rotter has made it – he belongs to the best traders in the world and counts as a real big player. he usually does 150 000 rt/d, sometimes up to 250 000 mostly in BUND/BOBL/SCHATZ futures. in the hall of fame of celeb EUREX players he’s top notch end even leaves tom baldwin (bonds) or lewis borsellino (S&P) behind. he had to work hard to make it. he blew up in the beginning of his career, which was painful but also educational – he learned his lesson and with lots of research, seeking improvement all the time, he became the man.
Q: was there any key event that brought you into the game?
A: no, no key event like ‘buying my first stock’. took part in some trading contest while at school.
Q: how did you get to professional trading?
A: when i was apprentice in a german bank i had to work on the DTB (now EUREX) execution desk for several weeks. this attracted me a lot. during that time i was doing gamble trades on my private account, losing pretty much all of it. when it was deeply in the red, i had to leave the bank but shortly after, i was allowed to start trading in a japanese bank. i was very lucky here, since i was allowed to gain knowledge through learning by doing.
Q: did the bank give you any mentor?
A: not, i didnt have one. in the beginning i was exchanging ideas with the chieftrader ajiasaka, who was constantly profitable. he sometimes even hedged the positions of his boss, when he thought that his boss was wrong. i had many conversations about market psychology, which proved to be very helpful, especially after bad losing days.
Q: how was your trading back then? have you been constantly profitable from the very beginning?
A: i was doing 100 – 150 rts a day after a short time…i had no losing month with the first 3 years of my trading. later on with bigger position sizes i took occasional hits, especiallly after EUREX allowed terminals in the US and big players like harris brumfield / chicago were entering the field.
Q: there is a saying that every trader has to completly blow up his account at least once before he can become successful. what did you learn out of it?
A: like i earlier said, my private account saw some bad times during my apprentice in the bank, although i must admit, that back then i had absolutely no idea that there was something like ‘risk-managment’. later on i found 7-digit losses to be cumbering. on day i had a blackout and after losing 2,5 mln € i was seriously thinking about stopping. i still had enough capital left to live without having to worry about financial issues and i just wouldn’t want to take those psychological hits anymore. after taking 4 weeks off, i regained my motivation and returned in the ring. i was able to make up the loss in a relatively short period of time, so that i came out stronger than before.
Q: has this changed the views of the market in a way?
A: with the experience of bigger losing days coupled with good phases right afterwards, i’m not so sensible for losing days anymore. i know that i can make it back. this has lead to being able to switch off the screens on a day with medium/small losses more easily, instead of forcing the way back into positive territory.
Q: what are your strengths as a world-class trader and where are the differences between you and other traders?
A: it’s the ability to get more aggressive in winning phases, taking bigger risks, and scaling back in losing times. this is against human nature. the best thing is to have somebody around who is neutral to trading, that switches the terminals off, when a certain loss level has been reached for the day.
Q: you are known as the orderbook-scalper, could you please explain to our readers what you are doing and what your strategies look like? what is your tactic?
A: it’s some kind of market making where you place buy and sell orders simultaneously, making very short-term trading decisions b/c of certain events in the orderbook (level2). for example, i usually have lots of orders in different markets at the same time, pretty close to the last traded price. the resulting trades are usually a zero sum game, but i get a pretty good feeling for what is going on and then ultimately can make a decision for a larger trade.
Q: how long are you usually in a positon?
A: since i do trend plays very seldom and actually scalp the market, i constantly get fills in different markets on both sides which can cause constantly changing positions for hours. sometimes i change my opinion several times within a couple of minutes, which is not pretty hard for me, since i’m only looking for the next 3-5 ticks.
Q: during your professional career, have you always been a scalper or did you try other strategies (momentum/swing) as well?
A: yes, i have always been a scalper, but i am adjusting my strategies to different market situations all the time. on volatile days i of course have less orders in the market and do more ‘single trades’, although i ususally hold them only for a couple of seconds.
Q: your strategies only work on electronic exchanges?
A: yes, because you cannot handle that much orders in a pit, looking for counterparties and so on. computer exchanges grant faster orderflow and are not as easy to manipulate.
Q: as a scalper, are you trying to run stops?
A: well, yes, but because of the increase of liquidity in the last couple of years, the fast spikes caused by stops are not happening that often anymore. apart from that, stops often are not where you would suppose them to be, because the other market participants are not silly and learned their lesson in the past.
Q: what role plays risk-managment in your trading?
A: i set daily goals for my p&l, whereas the most important thing is the stopping limit, the maximum loss i take, before i switch off the screens. my biggest positions are 5 digit number of contracts. i don’t use any specific money-management rules.
Q: what are you doing when a position goes against you? are you using stop-loss orders?
A: i striclly close my position when they start going against me. with bigger positions this is not that easy, because i move the market against me, which could cause other traders to get in the same situation like me, which could accelerate the move. however, most of the time i am able to make some of the losses up, because i know what caused that move and therefore take the opposite position.
Q: why don’t you have any problems with closing out the position and even taking the opposite direction? shouldn’t a trader stick to his opinion?
A: no, definetly not. an analyst or some kind of guru has to stick to it, but as a trader you should have no opinion. the more opinion you have, the harder gets it to get out of a losing position.
Q: what role plays market psychology?
A: i constantly try to read the psychology of the market and base my decsisions on it.
Q: how do you handle distracting thoughts and emotions?
A: when it gets really bad – taking a cold shower or jumping in a cold swimming pool.
Q: how do you prepare for the trading day? do you follow any routines or do you take it as it comes?
A: before the open i check all the economic reports that are about to be released, speeches of central bankers – simply anything that could move the market. then i try to define important levels in the markets i trade. i do this through my own analysis and through reading analyst commentaries. that’s how i get a picture of the market and its important levels. i am not interested in opinions of other market participants as this would influence my own opinion.
Q: any kind of mental preparation?
A: nothing specific. actually i am motivated all the time…i see trading more as a sporting challenge and try to erase the thought of the money.
Q: how many hours do you spend in front of your screens?
A: usually 5 hours, thats when i trade actively…in case of special events i can be up to 11 hours
Q: isn’t it hard to spend that much time in front of your pc’s? how do you stay concentrated for such a long time?
A: that is what my japanese colleagues asked themselves as well…well i take it as some kind of game where i forget the time. therefore the real troubles are more physical (eyes) than psychological.
Q: what do you do to calm down / relax?
A: i do lots of sports and take lots of vacations.
Q: what equipment do you use?
A: MD-trader from TT, reuters, bloomberg, CQG and a USD-squawkbox.
Q: why a USD-squawkbox?
A: i use it because €/$ had some effects on the intrest rates over the last couple of months. those effects change, right now it influences oil prices and the DAX.
Q: what timeframes are you using on your charts?
A: usually 5 – 30 min charts for trendlines and indicators. i prefer p&f charts because they give me a clearer view on patterns (triple tops). for indicators i like the CCI because it also shows the volatility of the markets.
Q: do you think is it possible for a single player to manipulate the market?
A: no, in my opinion a single player cannot influence the market around the clock. there are always several big players in the market. take the BUND for example – there are one million contracts traded a day. when a trend starts out of the blue with only slight pullbacks, i could trade against it, but with no effect. i couldn’t stop the market from going up, because there would be more money needed than i could bring in. apart from that, so-called ‘Analytics’ computerized scalpers have made it tougher for me lately. as far as i know they are analysing the behaviour in the orderbook and create a fully automated system. since they act in several markets at the same time, i think these computer freak come from the fully automated arbitrage and spread-trading.
Q: what has one to do if he wants to become a scalper?
A: he has to watch the orderbook for a very long time.
Median Lines Webinar September 9, 2005
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Hi traders,
There will be coming webinar in October 19th by Timothy Morge on how he trade currencies using Median Lines.
For more info please check out http://www.mapthemarkets.com/cme.html
Regards
OKL
Tibet Backpacking 
