September 2009 Volume 1, Edition 10
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In this edition: • The Month So Far…As at 25-Sep-09 - Analysis by William Chien
CONTACT US FOR A FREE EVALUATION OF YOUR SHARE PORTFOLIO OR TRADING HISTORY Matt.kirk@stonebridgegroup.com.au Jason.achjian@stonebridgegroup.com.au Philip.dooley@stonebridgegroup.com.au William.chien@stonebridgegroup.com.au
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• Three Little Spreads went to Market - Guest Contributor: Guy Bower • Technical Indicator of the Month: Envelopes - by Jason Achjian • Recommendation Program update - Commodities Basket Recommendations - William Chien's CFDs - Seasonal Spread Trading - PCD Advisory
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Analysis By William Chien The Month so far... 25-Sep-09
Please find below my latest projection of the local XJO index. A more detailed examination of the plotted trend channel lines on the XJO price chart suggests a significant price & time window as per circled area. Using the XJO analysis as proxy for the major stock market indices around the world, my analysis to date indicates the rally will likely continue till November. Clients who take part in my CFD trade recommendations have profited greatly from the recent rally and I invite anyone interested to visit the following weblink. http://www.toptraderthinking.com/toptrader/files/N380_cfdperformance.pdf Furthermore, the potential future movement in the stock market will have implications on the forex & commodities market as well. Please feel free to contact me by phone 1300 73 66 11 or by email for exclusive trade recommendations tailored to suit you & your account William.chien@stonebridgegroup.com.au
To be added to William Chien's mailing list and receive his recommendations please contact William on the following Email: William.chien@stonebridgegroup.com.au Phine: 1300 73 66 11
Three Little Spreads went to Market An insight into three simple trading strategies used by professionals - By Guy Bower STRATEGY #1: The Bull Spread The bull spread consists of two futures contracts – one long (bought) and one short (sold). To create a bull spread, a trader would buy the nearer to expiry contract and sell short the distant contract. Some examples of bull spreads are:
Long (bought) Contract July 2010 Soybeans October 2009 Natural Gas September 2009 Corn
Short (sold) Contract September 2010 Soybeans November 2009 Natural Gas December 2009 Corn
Generally speaking, a bull spread is a bullish position. That is, the spread is a strategy a trader would place when he/she is bullish on the market.
What Makes it a Bullish Position? The answer to this one is very simple. When a market rallies, it is normally the nearer contract that leads the way. That is, the contract that is closer to expiry tends to move further than the more distant contract. So buying the nearer contract and selling the more distant contract is a bullish strategy. As an example, let’s have a look at Soybean Meal over the early part of 2009. The chart below shows the price for December Soybean Meal and the bull spread price of Dec 2009 less July 2010 Soybean Meal. You can see a bull market occurred in both Soybean Meal futures and the bull spread around same time. In the market, traders can use the spread as an alternative to trading a single futures position. There are several reasons why a spread may be preferred: • Significantly lower margins. That is, it costs less to place the trade. • Reversals in spreads can often precede reversals in the underlying market. That is, the spread can act as an early warning indicator. This is evident in the chart below. If you look closely at points 1 and 2, you’ll see the spread starting and finishing its bull run before the same move in the futures contract, made a move higher (point 1) and completed the rally (point 2) before the futures. • Lower volatility. Generally speaking, a spread will carry less volatility or risk than trading outright futures. This can make spreads more attractive to the newcomer or conservative trader. • Diversification. Lower margins means the trader can spread risk across more trading positions than would be possible when trading outright contracts.
Source: eSignal - www.esignal.com
When is a Bull Spread Not a Bullish Spread? There are times when the underlying market may rally and the spread does not move in the same direction. The scenarios in which this can happen do vary from market to market. However, as a general statement it is more often news or fundamental supply information that will push a bull spread higher whereas a technical or speculator led rally may not see the spread move in the same direction as the underlying futures. While this concept may at first seem complex, it’s simply a matter of knowing what is driving a certain market. All that is needed here is a good source of trading information and market news.
STRATEGY #2: The Bear Spread Like the bull spread, the bear spread consists of two futures contracts – one long (bought) and one short (sold). To create a bear spread, a trader would sell short the nearer to expiry contract and buy the distant contract. Some examples of bear spreads are:
Short (sold) Contract July 2010 Soybeans October 2009 Natural Gas September 2009 Corn
Long (bought) Contract September 2010 Soybeans November 2009 Natural Gas December 2009 Corn
You can see the bear spread is simply the reverse of the bull spread. It stands to reason that a bear spread is a bearish position. That is, the spread is a strategy a trader would place when he/she is bearish on the market. As with a rallying market, when a market is in a bear trend, the nearer contract tends to lead the way. As such a bear spread is an alternative to an outright short position. Just like the bull spread, a bear spread, opposed to outright futures could be prferred in a bear market for reasons such as lower margins, lower risk, better diversification potential and the fact a spread can signal a turn in the underlying market ahead of time. So let’s look at an example. The following page shows the same Soybean Meal chart as that in the bull spread example. Note the spread is plotted as Dec (near) less July (far). With the bear spread, being short the Dec (near) and long the July (far) contracts, the trader would want to see this spread fall to make a profit. The thing to see in this chart is the fall in the spread as the outright December contract falls, as shown by the two arrows.
A Word on Margins As mentioned earlier, one reason traders like to trade spreads is the lower margin requirements. In the Soymeal example, a margin for an outright futures contract would be $2000. For the above spread, it would be 10 percent of that, or $200. That’s a big difference. Now while the spread has less volatility than the futures contract, the spread still gives you far more bang for your buck. Of course that can work for you or against you depending on what the market does, but it remains an attractive feature of spread trading.
Larry Williams
Great Markets for Trading Bull and Bear Spreads This list is based on experience and general opinion. There may well be markets not listed here that offer good spread trading opportunity. Energies: Crude Oil, Heating Oil, Natural Gas Grains: Wheat, Corn, Soybeans, Soybean Oil, Soybean Meal Metals: Copper Food & Fibre: Cocoa, Coffee, Sugar Financials: Eurodollars, T‐bonds, T‐notes
Tom Scollon
Livestock: Feeder Cattle, Live Cattle, Lean Hogs
STRATEGY #3: The Inter‐ ‐ Commodity Spread Our third type of spread is an inter‐commodity spread. It is a spread between two different but related markets. Consider markets such as Wheat futures and Corn futures (below). They are similar commodities (being grains) and the prices are related. A move in one market can move the other, but they do not move one for one. This creates spread trading opportunities.
Daryl Guppy
Consider another two markets: Live Cattle futures and Lean Hog futures (below). Both are livestock bred for human consumption. Both futures markets can move in line, but they can also have unique influences. This creates spread trading opportunities.
Guy Bower
Another example is Silver and Gold (not pictured). Both are precious metals and as such tend to move in line with each other. But there are also influences that are unique to each market. This creates spread trading opportunities. There are essentially three types of inter‐ ‐commodity spreads:
Catherine Davey 1. Spreads between related commodities. All examples above fall under this category. 2. Spreads between a commodity and its derivatives. An example is Soybeans versus Soybean Oil and Soybean Meal. The Oil and Meal is derived from Soybeans. Another example is Crude Oil versus Heating Oil or Unleaded Gas. Heating Oil and Gas is derived from Crude. 3. The third type of inter‐commodity spread is spreading the derivatives as outlined above. An example is Soy Oil versus Soy Meal, or Heating Oil versus Unleaded Gas. The prices of these contracts are related but the relationship does vary and therefore spread trading opportunities exist. So let’s look at an example. One spread I enjoy trading is Live Cattle versus Lean Hogs. As mentioned above, both are livestock bred for human consumption. On one hand they are interchangeable foods. If the price of pork chops is too high, you may buy beef steaks instead for example. However, there are also some differences. Pork, for example, is used to make processed meats. These pork products have different demand characteristics from beef products. As such, we have two related but different futures contracts. Therein lies the trading opportunity. For example, during the US summer holiday and driving season, demand for processed meats picks up relative to beef products. Conversely, during winter, demand for beef products tends to be stronger.
Sari Mustonen-Kirk
It’s the shift in relative demand (or supply) that creates a seasonal variation in the spread price. Generally speaking, the futures contracts will start pricing in these end‐product demand patterns well ahead of time, but with a well timed‐trade, it is possible to make money from these patterns.
Facts About Inter‐ ‐Commodity Spreads: • Inter‐commodity spreads tend to be a little more risky than the kind of bull and bear spreads we looked at earlier. • Margins are still less than outright futures margins, but more than bull/bear spread margins. • There is generally more profit potential from an inter‐commodity spreads than a bull or bear spread. This is not always the case, but it is more often than not. Great Markets for Trading Inter‐ ‐Commodity Spreads Metals: Gold‐Silver Financial Spreads: Combinations of 5yr note, 10yr note and 30yr bond. Grains: Combinations of Wheat, Corn and Soybeans Soybeans Crush (Soybeans, Soy Oil and Soy Meal) Livestock: Combinations of Feeder Cattle, Live Cattle, Lean Hogs Energy Markets: Crack Spreads (Crude, Heating Oil, Unleaded Gas)
Contributor information: Guy Bower is professional futures, options and spread trader. Guy is the author of two books: Options: A Complete Guide and Hedging: Simple Strategies
Morning Market Report Don't forget to check out our Morning Market Report Posted to the TopTraderThinking.com website every business morning at 8:00am The Morning Market Report Covers: - Previous days ASX index closing prices - Over night SPI (SYCOM) closing price - International Index futures closing prices - Metal and Energy futures closing prices - Currency and Commodity Futures closing prices - And Over Night news points You need to be a member of the TopTraderThinking.com website to view the report (membership is free) To become a free member click this link: http://www.toptraderthinking.com/toptrader/signup.asp If you are a member the morning market report is at the top of the home page of:
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Example:
Technical Indicator of the Month By: Jason Achjian
Envelopes
What Envelopes Technical Indicator is formed with two Moving Averages one of which is shifted upward and another one is shifted downward. The selection of optimum relative number of band margins shifting is determined with the market volatility: the higher the latter is, the stronger the shift is. How Upper Band = SMA (CLOSE, N)*[1+K/1000] Lower Band = SMA (CLOSE, N)*[1-K/1000] Where: SMA — Simple Moving Average; N — averaging period; K/1000 — the value of shifting from the average (measured in basis points).
When These trading bands are used by technical analysts to define a stock's upper and lower boundaries. Signals to sell occur when the stock price reaches the upper band, and buy signals are generated when the price reaches the lower band. The reasoning behind the sell and buy signals is that stock prices tend to bounce off the bands. Even though buyers and sellers will temporarily pressure a stock's price to its extremes, it should re-stabilize to more realistic levels found within the envelope.
How to add this to your Charts in eBridge Trader Whilst in your workspace viewing a chart, click this >>> Trends >>> Envelopes...:
symbol at the top of the chart, then
The default fields that appear can be adjusted at this point for this indicator; you can also adjust them later if you wish. You can also adjust colour and the weight of the line:
Click OK once you’re satisfied with the settings. You will now see the Envelope indicator added to your chart. You can later adjust settings by clicking the ‘ENV’ at the top left of chart and then clicking on ‘Properties’, you can also delete the indicator from this menu If there is any feature of eBridge Trader that you’d like covered in next months newsletter please email your request to: jason.achjian@stonebridgegroup.com.au
To open an eBridge Trader account or get further information on adding technical indicators to charts using eBridge Trader please contact Jason Achjian by Email: Jason.achjian@stonebridgegroup.com.au or Phone: 1300-73-66-11.
service@toptraderthinking.com
Matt Kirk http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42 http://www.toptraderthinking.com/toptrader/shop.asp?i d=42
Jason Achjian
William Chien: CFD Recommendation Service Trading Objectives
Trader Profile
This program focuses on trading CFDs on ASX shares with a short term view (less than 8 weeks in most cases). William Chien uses technical analysis to zoom in on potentially profitable opportunities and then forwards email recommendations to his distribution list. William is very conservative and will generally do no more than 4 trades in any given month. When conditions are not right William will not trade at all.
Traders with a relatively high risk tolerance and who also want a degree of involvement in their trading decisions would be best suited to this approach. No positions will be entered or exited without prior confirmation from each individual client. If you disagree with Williams view on any particular trade you are under no obligation to enter or exit the position.
William Chien Recommendation Perfomance
*Balance is in AUD based on minimum quantities and is net of all commissions. Results are unaudited. Updated COB 31-08-09
Philip Dooley
Conditions If you receive but do not take advantage of 3 consecutive trades you will be removed from the email list. A minimum starting balance of $20,000 is required for this service.
To register your interest, open an account or request further information about this service please contact us: 1300-73-66-11 William Chien:
william.chien@stonebridgegroup.com.au
Please refer to toptraderthinking recommendation discalimer: http://www.toptraderthinking.com/toptrader/marketnews.asp?id=288&action=viewarticle
Pro-Trader - Seasonal Spreads in Futures & Options In Brief Pro-Trader is a recommendation program designed to take advantage of historically high probability seasonal opportunities in a wide range of markets using futures and options spreads. On average, one trade per week is generated and the length of time in each trade is approx. 23 weeks. Stop losses are based on closing prices i.e. exits are made the following day if the market closes outside of the stop level.
Trader Profile This program suits those who want to take advantage of opportunities in stock indices, interest rates, currencies and commodities markets. Traders with a relatively high risk tolerance and who also want a degree of involvement in their trading decisions are best suited to this approach. No positions will be entered or exited without prior confirmation from each individual client.
Recommendation Perfomance
*Last updated COB 31-08-09. Balance is net of commissions Past performance is no guarantee of future results
Commissions / Conditions The brokerage rate charged is US $15.00 per side of each trade (+GST). If you receive and do not take advantage of 3 consecutive trades you will no longer receive fully detailed email recommendations. Minimum starting balance of $15,000 is required.
To register your interest, open an account or request further information about this service please contact us: 1300-73-66-11 Jason Achjian:
jason.achjian@stonebridgegroup.com.au
Please refer to toptraderthinking recommendation discalimer: http://www.toptraderthinking.com/toptrader/marketnews.asp?id=288&action=viewarticle
RECOMMENDATION PROGRAMS – UPDATE COMMODITY BASKET RECOMMENDATIONS (CBR) OCTOBER 2007 TO AUGUST 2009 UP 68.19% NET OF COMMISSIONS MINIMUM ENTRY LEVEL $A10,000
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PRO-TRADER (SEASONAL SPREAD TRADING) JUNE 2008 TO AUGUST 2009 UP 22.58% NET OF COMMISSIONS MINIMUM ENTRY LEVEL $A15,000
PCD FUTURES ADVISORY JULY 2008 TO JUNE 2009 UP 27.0% NET OF COMMISSIONS MINIMUM ENTRY LEVEL $A200,000 Please contact the Futures dealing desk for further information on recommendation programs Phone: 1300 73 66 11 Email: jason.achjian@stonebridgegroup.com.au
NOTE: RESULTS ARE UNAUDITED – PLEASE CALL OR EMAIL TO REQUEST SUPPORTING DOCUMENTATION IF YOU ARE CONSIDERING PARTICIPATING IN ANY OF OUR RECOMMENDATION PROGRAMS
WANT TO RECEIVE OUR RECOMMENDATIONS? To receive recommendations on an ongoing basis you must be a client of StoneBridge Group Gold Coast Derivatives desk. To open an account email matt.kirk@stonebridgegroup.com.au or contact the dealing desk on 1300 73 66 11. Please see our Recommendations & Information disclaimer on www.toptraderthinking.com Click on 'Market News' to read thoroughly prior to entering into any of our trades. There is always a risk of loss in derivatives trading. Past performance is no indication of future results. Do not trade with funds you cannot afford to lose. Seek independent financial consultation before entering any trade recommendation program. All information and recommendations are general advice only and we have not taken your personal financial position into consideration
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In edition #11 of Top Trader Thinking Your Markets Monthly… Trading shares with another broker than us? You'll be interested in what we can do for you! Look out for info in late October 2009! uROk 33 DAY CHALLENGE - BRILLIANT FOR TRADERS A complete DIY life management and goal achievement tool the uROk 33 Day Challenge is great for traders as well. We all know that to trade successfully and consistently we need a plan but we also need a balanced life. The uROk 33 Day Challenge will help you reach new heights in all areas including: Health, Wealth, Self, Love, Work, Create and Y (personal purpose and who you really are). The Challenge is ideal for both new and seasoned traders and will help you cement what you've learned and take action to realise the goals you truly desire in the markets and in life in general. Includes: 1. uROk 33 DAY CHALLENGE Dream Your Life, Live Your Dream PERSONAL PLANNING WORKBOOK 2. GUIDED VISUALISATION CD by SARI Dream Your Life, Live Your Dream for Contribution & Achievement Compact Disc. 3. uROk.tv MEMBERSHIP It's easy, it's enjoyable and it actually works. If you're ready to have more, be more, give more, do more, and get more out of life (and trading the markets) then order this revolutionary programme today. PAY ONLINE WITH Mastercard and Visa http://www.toptraderthinking.com/toptrader/shop.asp?id=82
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