Video market round up for the week ending 7th June 2013 (up to 6th June)

A week ending round up of the markets from Steve Briggs YouTube channel.

Included in this video is a look at several FTSE100 and 250 stocks, potential trading tips, support and resistance points, etc. Stocks covered include Fresnillo, RPS Group, Royal Dutch Shell, Salamander Energy and Weir Group.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Useful charts and analysis can also be found at http://www.flickr.com/photos/stevebriggspics/

What type of trader/investor are you?

It's fair to say that there are many different ways of trading and investing in the markets. Often, stereotypical images emerge to describe a trader, usually someone who is a day trader or very active. This is perhaps why trading is often seen as gambling as focus is placed on short term, fast gains, but it is often overlooked that there are many different ways to trade, over different time frames and using different methods of trading, it's up to each individual to find what works best for them.

Another false image that often emerges, especially between traders and investors themselves, is the idea that you are either a fundamentalist or a technical trader. True, many do simply concentrate on one as against the other. Chartists will tell you that all you need to know about a share is already in the charts, while fundamentalists will focus on things like value, growth, valuation momentum, etc. There is a tendency that never the twain shall meet and often one side will attack the other, Chartists are seen as the equivalent of tea leaf readers, while fundamentalists, because they might never look at a chart may often just buy because they think something is cheap on valuation, although the charts might show them that the company is in a nasty downtrend, if only they would bother to look.

As a trader/investor I've often wondered where I fit in all this as the system that I've developed tends to mix both fundamental and technical analysis. For example, I won't buy a share unless certain tick boxes are ticked when it comes to fundamentals. Occasionally, especially with "blue sky" growth opportunities, I will take a punt on the technology winning through, but even here I try to avoid one trick pony companies who basically will go bust if their one trick doesn't pay off.

FTSE100 Update - Finally rolling over?

A couple of days ago I posted a chart showing the FTSE100, it looked like it was ready to go up again. Indicators suggested that we might be in for an early reversal of a minor downtrend that had been in place over the previous couple of weeks. Well, it looks like we got a classic example of indicator headshake, looks like it is going one way and then suddenly reverses, the previous trend still in place.

This is something that needs to be watched out for whenever indicators look like they are reversing from an existing trend. I call it the headshake, because a little like the dummy move that defenders (put in your favorite sport here) are often sold by attackers, you can go one way and then suddenly find your foe has gone in the opposite direction. Yes, you can look like a dummy and markets behave in the same way to.

A typical example of this is the headshake that often happens in the early stages of a Bollinger Band expansion. The Bollinger Band will often, especially after a period of consolidation, open wide, the direction can be up or down. You can see on the chart below how the band opens like a bubble in places, but quite often the initial move that price is making is not the direction that price eventually goes. In other words, you might think the bands are opening to the upside because price seems to be heading that way when in fact it is going to eventually reverse after the initial move and go in the opposite direction. This why it is often important to wait for confirmation. It means you will always miss the early part of a move, but it should keep you clear of the headshake.

As for the FTSE100, the MACD has reversed, moving averages are under pressure and the Parabolic Sar didn't hold. The chart now looks negative, with the Bollinger Band opening towards the downside, unless of course what we are seeing is another headshake. Perhaps the US numbers due out later today will confirm one way or another the direction? If they don't meet market expectations, the charts are telling us we should go lower.

Chart:

January, historically an important month for the markets.

January is usually an important month for markets as it is often the case that as January goes so does the rest of the year. 

Data below is for the US markets.

Market Watch reports:

Since the late 1800s, when the Dow Jones Industrial Average was created, it has gained ground in 63% of the Januarys. The comparable proportion for all other months of the calendar. in contrast, is 57%.

Largely on the strength of these increased odds, the average January gain for the Dow since the late 1800s has been 0.9%, in contrast to 0.6% for all non-January months.

It goes on.

Since the late 1800s, an “up” January has been followed by an “up” rest of the year 67% of the time. The comparable percentage for a “down” January, in contrast, is 55%. The difference in average 11-month returns is 8.3% (follow an “up” January) vs. 4.2% (following a “down” January).

http://www.marketwatch.com/story/how-special-is-january-2013-01-02?link=MW_story_insert

If January is a very good month then the rest of the year often follows suit.

Since 1970, there has been 13 times when the US market has been above 3.75% in January. Every time the index completed the year with a substantial gain.

The 13 Januarys with returns of 3.75% or greater were in 1971, 72, 75, 76, 79, 83, 85, 87, 88, 89, 91, 97 and 99.

The average gain for the rest of the year was a surprising 19.6%.

http://www.marketoracle.co.uk/Article32875.html

While there is a need to be weary of such stats in that there is no guarantee that history will always repeat, it is worth noting as part of an investment/trading strategy that some months do tend to see better performance than others and as with behaviour in general, the markets often repeat what they have done before. It will be interesting to see how long and how much of a positive Fiscal Cliff sentiment carries on into the new year.

Some observations on choosing a time frame to trade

This is a follow up to the post what time frame are you trading/investing in.

Choosing a time frame to trade that fits your personality and psychological makeup is one of the most important steps to make if success is to be achieved in the trading game. Some people like action, fast moving markets and volatility while others prefer a more slower, cautious approach. It's difficult to be able to do both and can be a nightmare if you get involved in a type of trading that you are simply not suited to, so it's better to find out as early as possible what time frame of trading you feel comfortable with. However, each time frame that can be traded throws up its own questions, so based on my own experience I thought I would post a few observations.

First, short term trading. I found very quickly that this did not suit me. To be a good short term trader, day trading where you may be using the tick,1, 3 or 5 minute chart, you have to be able to handle volatility and market noise. Many of the market moves over the very short term time frames are noise, with many potentially false signals, not only do you have to be able to trade quick, but also get rid of potential losing trades quickly. On shorter time frames potential big moves while they do happen tend to be rare. While it's certainly possible for those with the right psychological makeup to make decent money on perhaps just 5-10 winning points a day, no one should kid you that it's easy. If you like action then this time frame may be for you, but by and large, at least according to many reports, most traders, especially spread bettors who choose this "action" type day trading tend to lose.

Traders' magazine, trader Interviews issue

A while back I posted about free online trading/investment magazines, the original can be found here.

Traders' magazine was one of those included and the latest edition is an interview special with 10 popular traders speaking about their strategies – including Scott Redler (proprietary trading, T3 Group), Larry Pesavento (more than 50 years trading experience, pattern trading), Peter Milman (Hedge Fund-Startup, proprietary trading before that) Tim Bourquin (TraderInterviews website and swing trader) and Harry Boxer (Swing and day trading) to name 5. I've read a few of the interviews and it's worth getting especially as it won't cost you anything.

You might have to sign up to the site, the link and full list of free magazines can be found here.

Should you follow the news?

One of the many trading/investing emails that I receive is from trader John C Burford, MoneyWeekTrader (you can sign up for free at Moneyweek.com).

In a recent email on the latest market volatility he said;

Now, if you read – and believe – the mainstream’s rationale behind this move, let me offer you an alternative explanation. It has little to do with the ‘news’.

The conventional story was Mario Draghi’s announcement "that the ECB stood ready to do ‘whatever it takes’ to retain the euro". There were also some positive earnings reports out of the US (a lagging data point). 

But remember on Wednesday, I noted that the market had completed a textbook five waves down to the 12,500 level on Tuesday – many hours before the above news emerged.

I stated then that I expected a rally from this level, and this is what occurred. 

Four reasons why first time traders often fail

High expectations.  When starting something new at almost anything in life we may have high expectations and high hopes of success.  Often we rate our own abilities to do something that others can't too highly.  We think we are better or at least the equal of others.  After all, when it comes to shares, how difficult can it be to trade the markets? All they do is go up and down.  Occasionally they stall and consolidate, but for the most part they go up and down, it looks like a 50/50 game, they go one way or the other.  Yet if statistics are to be believed 80-90% of traders lose and first time traders will often blow one, two or more accounts before giving up and moving on to something else.  Even worse, statistics tend to suggest that if you give your money to a professional money manager, most of them tend to underperform the market as well, but at least they get a fee to keep them solvent.

There is nothing wrong with having high expectations and a positive outlook as to what you can achieve, but it is important to remember that trading and investing is a marathon not a sprint.  Survival, continual learning, money preservation and staying in the game is what counts.  Many traders have stories of not making any money or even losing for several years before they got it right.  Excepting losses and failure is part of being a trader.  Failure can be a good thing provided you learn from the mistakes you make.  Anyone who expects trading to be easy will find that the markets will probably bite them back sooner rather than later.  Aim to survive and you just might join the 5-10% that do well.

Lack of Discipline.  Most beginner traders lack discipline, whether that is to stick to a plan, their chosen market or watchlist, lacking patience and waiting for the right opportunity.  There are many reasons why discipline breaks down, one of which is feeling the need to be doing something.  Trading, especially if your psychology is more geared towards longer term swing and position trading opportunities can be very boring.  The waiting game is something that many traders have to get use to.  Long periods of time where your strategy and trading plan may not be generating any signals.  If you have a plan, and you should have one, then discipline is required to stick with it.  You have to give it a chance to work, chopping and changing, whether it is the markets you are trading or chart patterns and indicators that you are using, will work against you if you cannot settle on your plan.

Frustration.  The markets can be a very frustrating place, most of the time it is likely that they will not be doing what you expect them to.  Expecting markets to behave in some rational or logical way is likely to get you into trouble big time and this can be very frustrating for those new to the game.  Remember that this is a game of fear and greed. One day the news will be full of events that make the market fearful, a few weeks later those fears might be priced in and the market reacts positively to exactly the same fears that it was negative to previously.  Then before you know it, they are fearful again. 

For those that say that technical analysis doesn't work, all a chart really does is reflect in a historical way those fears and greed in a series of up and down movements.  A chart is a past reflection of human, and increasingly computers programmed by humans, behavior in the markets.  Past behavior is a reasonably good guide to what people will do in the future, because we do tend to be creatures of habit.  Charts can help tell us what we need to know and if you can get past your frustration of what the markets are doing when you think they should be doing something else, learn to go with the flow and accept that the market doesn't care what you or I think, you might start to see some sense of what is really going on.

The search for the holy grail of trading.  Straight up, there isn't one.  There are good traders and bad traders.  Good investments, bad investments.  Find a way that works for you and that in a sense will be your holy grail.  Chances are it won't work for everyone else. Doesn't matter what it is, if you can make money from trading a couple of moving averages, do you need anything else?  Finding what works for you is the holy grail.