The purpose of this series of posts is to provide a manageable list of fundamental trading rules to help you improve your trading process - regardless of your experience level. I will also explain the rationale behind each rule and highlight its significance. Here are the 4th and 5th in a series of 11 rules that will help you improve your returns and reduce your trading losses.
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The purpose of this series of posts is to provide a manageable list of fundamental trading rules to help you improve your trading process - regardless of your experience level. I will also explain the rationale behind each rule and highlight its significance. Here are the 2nd and 3rd in a series of 11 rules that will help you improve your returns and reduce your trading losses.
Sometimes it helps to go back to basics. If you are not completely satisfied with your investment process (or you don't have an investment process) here is the 1st in a series of 11 rules that will help you improve your returns and reduce your trading losses. In this series of posts, I will also explain the rationale behind each rule and highlight its significance.
In the December 2007 issue of Futures Magazine, Larry Williams described his Price, Open Interest, and Volume (POIV) indicator and he also included the formula for POIV, which allows us to reproduce the indicator calculations. The following post reexamines the POIV indicator calculation (including the AMIBroker code) and demonstrates how to apply the POIV indicator using two timely futures contract examples.
The first and most important rule of trading is to always trade with the prevailing trend. I have emphasized this rule in a number of my past posts. It holds true in all market environments, but is especially crucial in bull markets, which can stay overbought for extended periods. As John Maynard Keynes noted "The market can stay irrational longer than you can stay solvent."
I continue to believe that the odds favor a recession in the U.S. and the market is overdue for a correction. Even if those projections are accurate, it does not mean that the market will reverse direction in the immediate future. It is notoriously difficult to forecast the beginning of a recession and even more difficult to forecast cyclical market tops. The fact is that the S&P 500 is still in an uptrend and it is unwise to short a bull market. It is much more prudent to wait for the trend to change than to stand in front of a speeding freight train.
Over the past week, the yield on ten-year Spanish debt dropped from over 7.00% to a low of 6.60%. The yield on Italy's debt dropped from over 6.00% to 5.78%. That is great news, right? It means that Europe has finally taken meaningful steps to resolve the debt crisis. Not quite.
I have a new article coming out in the September 2012 issue of Active Trader, which may already be available in bookstores. If not, it should be on the shelves in the next week or two. The article is titled "The Science of Selling Options." It explains how to use directional volatilities to find the best strike prices for selling out-of-the-money vertical spreads.
Active Trader may eventually add a link to their website, which would allow readers to purchase and download an electronic copy of the article as well, but that would not be available until the October issue is published - at the earliest. If Active Trader adds the download link to their site, I will post the new link here.
Here is a link to my previous article in Active Trader titled "Modeling Implied Volatility."
I hope you enjoy the articles.
Brian Johnson
Copyright 2012 - Trading Insights, LLC - All Rights Reserved.
September: Worst Month of the Year for Stocks
Stock prices have had an impressive run, especially considering the risks facing the global economy and the growing uncertainties fueled by the looming fiscal cliff and the upcoming election. During the recent market advance, investors have become increasingly complacent, evidenced by declining levels of both implied and historical volatility. The market rally will be tested in September, which historically has been the worst month of the year for stocks.
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