Category: Trading

Last year, there were a lot of speculations that because of the dry weather from the United States the wheat and corn production would be very low so the prices rallied to record highs. In the autumn of 2012 even though the yields were pretty low, the production was not that bad and prices started to fall. This year the production is estimated to be high. Each time prices go up; producers are planting more and more so the offer rises fast, while the demand remains constant. In these cases the price tends to fall.

Chart: Corn/Wheat, Daily

The prices of corn and wheat tend to be pretty good direct correlated. But sometimes happens that the prices start to diverge. This happened again during the past weeks. From 20th of September, the price of corn continued its down trend, while the price of wheat started a rally.

At this point there are some technical signals that corn might come back above 4.5$ per bushel. The positive divergence on the RSI signals a possible reversal, but from my experience, I would say that it will be helpful to see a close above 450.00 level. For the 2.4$ spread, between these two grains, to be covered we could also expect a fall of the price of wheat. The technical signal for this would be a drop under the local support, given by the latest low.

Using this divergence, traders could use a spread system and enter long corn and short wheat. A pretty used hedging system that could get a pretty interesting return for its user.

 

Chart: XAUUSD, Daily

The price of gold started to fall at the end of august. In less than 2 months it touched a low at 1251$ per ounce, marking a loss of 12.6% from the high of this second half of 2013. The down trend seems to have lost its power with every swing low and yesterday the price has drawn a reversal candle, Hammer.

Looking at the form of the down trend on both, candle stick chart and line chart, we can observe that the price has drawn a Falling Wedge. This pattern usually signals a reversal. A breakout through the upper line of the price pattern it would be enough to confirm a rally. The price target of this Wedge sits around 1400 dollar per ounce.

Even though there are bullish signals, traders should wait for a clear confirmation in the price action. If the price will continue to make new lows, than it means that investors have already set their mind and the down trend might continue all the way to 1200$ per ounce.

 

You have probably already heard that it is important for traders to set up a Trading Plan. This should be a must, in my opinion, for novice traders but also for those who have experience (but they know this by now).

Trading Plan

One of the most important attributes of a Trading Plan is that it helps the trader to be disciplined. Discipline is a quality that cannot be taught that easily, but it can be learned in time. Another attribute would be that it keeps details that a human being at some point would forget. It also helps the trader to avoid the mistakes that he already did in the past, but also those that comes from negative emotions like greed and fear.

Trading Strategy

For a novice in this domain to get to have a strategy, he/she would first have to learn about the markets, to get to know the opportunities and to get to know the risks. When a trader found a working strategy or strategies he/she would then have to write every detail of the strategy in the Trading Plan, so that nothing to be forgot. This way the trader will always keep an eye on the trading strategy and will lower his probability to make unnecessarily and unforced mistakes.

Money Management

At least as important as a good strategy is a good Money Management. If you fully understand your trading strategy you can, then, adjust the money management so that you will get even more money from the market.

A good money management, adapted to each situation is one of the best weapons that traders have in their arsenal. You will find different types of Money Management in the trading books, but you cannot take them and apply without any changes. As well as for the trading system, each trader should consider adjusting their Money Management to their own personality.

Trading Schedule

It is important for a trader to set up a trading schedule. Taking into consideration the strategy that he/she has, the time that has at disposal for this activity. It is important to how much time to invest in reading the news, analyze the market, review your instruments and apply the strategy. If you do not allocate properly your time you might end up doing mistakes.

Trading Journal

Each Trading Plan should include also a Trading Journal. Writing the motives of your entries, the emotions that appeared during the trader, but also other details that could help in the future is very important in each trader’s evolution. With the help of the Trading Journal the trader can fine tune his strategy or adjust the money management and the emotion management to improve the results.

These are the main points to be discussed that can be included in the Trading Plan. Even though everybody knows about them, but there are few who use the full power of this weapon.

 

As a starting point I feel the need to tell you that there is no Saint Grail in trading. I don’t think that there is a single person to have a Secret trading system that it will work 100% of the time, or as well for anyone else that uses it. If a trading system would be given to 10 different traders, it will produce different incomes for each trader, because there are personal factors that will mess with the final result.

The main idea is that you should understand that you cannot find a special strategy that it will work for you as well as for someone else. You should follow some basic steps to find a good strategy and adjust it so that it will bring constant profits in time.

Trading Is A Business!

One of the biggest mistakes that novice do is to believe that from this domain anyone can make big and fast money, without knowledge and understanding of the market. Trading is a business! One that would like to invest should take into consideration this fact and invest time in learning and acknowledging the risks that could appear in this activity.

If the risks are full understood, next step would be to learn about the mechanism, understand how the market moves, which motors turn the wheels and move the price. It will still not be enough to find a strategy.

Basics Rules!

Start learning the basics in technical analysis and fundamental analysis. Apply what you have learned on charts and start reading the price movements. Get into details and find patterns that will help you forecast what it could happen next. Practice and take your time in understanding each new thing you learn.

It will not take long and you will become very enthusiast and you will try to learn more and more thinking that this is the way to have success in trading. You will find out that learning to much it is also a trap of the market. There so many theories, strategies, indicators, price patterns, candlestick patterns, etc. that at some point will end up contradicting each other and you will end up in complete darkness. Take it step by step and don’t rush into learning to many things at once.

Practice, Practice, Practice

Each time you learn something new; don’t take it as it is. Start applying it as soon as possible, turn it 360 degrees and understand everything about it. This way it will be very easy for you to know if it will help you in trading or you could skip it. Taking this path you will see that at a point it will be easy to combine technical indicators or chart patterns and raise the probability to have a successful analysis.

Practicing this in paper trading or even better on demo trading you will see that a trading strategy will emerge. A trading system that is suited for you. It will be tailored for your needs, for your personality and for your risk aversion/appetite.

As you can see there is no short and easy way to get to a good strategy. But you will see that is the one that will bring you satisfaction. Consider investing some time and money in your education. It will be the only way to raise your chances to be profitable in this jungle and avoid being eaten alive. Even if it sounds harsh you should understand that if you do not have the time and money to invest in yourself you should rather consider doing something else.