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The Bible of Trend Following

From Doctor to Hedge Fund Trend Following Manager

I had a very pleasant surprise. Several years ago when I started teaching I had the good fortune to teach a doctor who was an internist in a Midwest hospital. He was an avid learning and extremely hard working….

Today I got an invite over LinkedIn and looked at his profile…

I am currently working as a full time hospitalist out of XXXXX. I am also in the final stages of launching XXXXXXXX, LP. This is an alternative investment vehicle for individual accredited investors and institutional investors. The fund is anticipated to launch within 3 months. A lot more information to come on that!

Yes with hard work …dedication…patience….rules and a complete plan one can be a successful trend follower.

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The Resistance of the 200 Day Moving Average – Trend Following

As I have said many times…The 200 Day Moving Average is the line of delineation of bears and bulls.

If the Nasdaq and SPY can get back above this level with some conviction & stay there there is a good chance we could be moving higher. Conversely, if not then lower prices are likely ahead. At this point I am at a wait and see…or wait and potential prove. Otherwise I could be catching a falling knife and this is not trend following…

From the low on Tuesday there have been three successive up days on lower volume each day. These are wedging rallies that are usually not successful. This pattern must be broken if there averages are to have any chance of moving higher.

Time will tell…but in order to succeed one needs a complete trading plan. This is why I teach trend following. It is never easy nor something simply learned over the weekend….

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Relief Rally or a New Bull Run? Trend following Stock Market Question

After a decline as large as we saw in the last week a rally is to be expected. The key in my mind now is the 200dma on the COMPQ. The index is now 2% below this moving average which is now resistance. If the index can break above this level with some strength it might have a shot at returning to recent highs or even a new Bull Run. If it can’t then we should see lower prices.

What does this mean…Have a trading plan. Both Bulls and Bears have been hurt over the last week. I have fielded many calls and the bottom line was most did not have a trading plan. My students have avoided all of this for the most part. They have exited and now sitting on the sidelines with out any emotions waiting to see what to do. One does not need to be in the stock market at all times when trend following..

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Is Trading Forex for experienced traders only?

Is Trading Forex for experienced traders only?

We have all seen the ads and headlines on various blogs, prompting the reader to try his shot at trading the different currency pairs of various countries as if it was the easiest thing to do in the world. But trading carries a high amount of risk, and the fast paced nature of currencies can be more than what a new trader can handle.

1.The differences of trading stocks vs Forex

Investing in a stock, or a stock index has a basic assumption: There is value behind it. This is easy to understand, as there are hundreds or sometimes even thousands of employees working 9-5 every single day creating products or services which can be sold. All for the single purpose of turning a profit and to have a big fancy announcement when quarterly results are published. The market, and the investors are constantly trying to keep the instruments’ price at a point they currently believe to properly reflect the current value. This takes into consideration the potential of future earnings, dividends, etc.

Although a stocks price can wildly fluctuate, it is geared towards gaining, as the company tries to earn more profits, source more clients, and grow bigger. This sets a certain tone for traders, as a stock’s price is expected to climb higher at all times.

Trading Forex on the other hand is something wildly different. Currencies are a “product” of their respective economies, be it a single country like the United States of America, or a group of them like the European Union. Although the countries and economies do have economic output, and are also expected to do well, increase their GDP and grow, they are also pitted against each other. The EUR for example might do well, but if the US does better, then the value of the EUR will definitely fall compared to the USD.

When trading Forex you always trade currency pairs so usually you have to take fundamentals into consideration in order to position yourself before big moves. The volatility in the global markets causes a lot of volatility in all the currency pairs. This in itself is not a big deal, but there is one other big factor.

2.

3.Leverage

Leverage is nothing new. Traders in the early 20th century had already access to it in one form or another, but to a limited extend. Nowadays it is not seldom that you can find a Forex broker offering close to a 1000 times leverage. This means that a trader with $1000 is able to open a position worth of $1,000,000 or 10 lots. Each pip move will result in $100 gain or loss, meaning he can wipe his account clear in 10 pips – a move that usually happens within a couple of seconds. Obviously he can also earn this much or even more, if he is on the right side of trade.

From a pure technical point of view there is not much difference between stocks, commodities or Forex. A chart is a chart, and if you believe in technical analysis then you assume that all information is included in the chart – an extension of the efficient markets theory. There are, however very small differences which only a seasoned trader might be able to spot.

4.Chart patterns

Chart patterns, for example, have a much more limited validity when trading Forex. It is often that you can see a perfectly formed head and shoulders pattern, or double top at the end of an uptrend. You might be able to get in short when the breakdown happens, just to be stopped out within minutes or hours when the FX pair makes a 180 degree turn to resume its climb. A chart pattern like this on a stock is usually much more dependable. The underlying fundamentals are much more pronounced in the chart, and the stronger currency pair will always have the upper hand, at least on the chart.

Obviously there are some good setups, and it is possible to trade Forex efficiently and successfully. The bigger players and many institutional investors do so, but they usually use no, or only a very low amount of leverage. This brings the potential return down, but it is quite hard to go bankrupt when you simply convert your funds from EUR to USD without using any leverage. Say for example a trader is long the EUR/USD with 3 times leverage, bought at 1,1500. In order to lose everything the pair would have to trade around 0,8050 – a move like this will not happen overnight (with very few rare and extreme exceptions), and if it does indeed drift lower to such levels then this trader would have plenty of time to exit the position.

All in all you don’t have to be a seasoned veteran just to start trading Forex. If you adhere to strict money management rules then it is just as simple to enter positions as it is with stocks, with the added benefit of 0-24 liquidity during the weekdays. If you learn the limits of your trading account then you can also learn to handle the leverage your broker offers, giving you a very powerful tool to earn above average returns. And best of all, this tool can always be at your fingertips, no matter where you go or what you do, allowing for unprecedented freedom. And that’s all that matters.”

or what you do, allowing for unprecedented freedom. And that’s all that matters.

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Finance: Best Advice for Investors

Actually a Rabbi of mine that is a tremendous amount of inspiration and strength sent this to me…

Wanted to share…These are his opinions…BTW Gold is in a downtrend from a trend following perspective but that can change….

The world stock markets continue to tumble and people are looking for “safe” havens for investment. Who can they trust for advice?

At the time of this writing, Wall Street seems to be rallying. Loads of financial correspondents are calming the American public, “Don’t panic – stay in the market; everything will be OK!”

Do the big investment bankers believe that everything will be OK on Wall Street? If so, why are they all hoarding gold as fast as they can?

According to securities attorney Avery Goodman, Goldman Sachs and HSBC took major positions in physical-hold-in-your-hand gold last week, while continuing to recommend against buying gold to their clients! The gold bars were not purchased for bank clients. They were purchased for the banks themselves. How do we know this? They are designated by the exchange as being for delivery to the bank’s “house” accounts at COMEX, not to client accounts.

As of August 6, before the stock-market bubble began its nose-dive, Goldman Sachs (NYSE:GS) and HSBC (NYSE:HSBC) took delivery of a sum total of 7.1 tons of physical gold. Goodman writes, “No, I have not made any typographical errors. And no, I am not talking about electronic paper claims. I am talking about shiny yellow metal stuff that you can touch and feel.”

Many people had a fit when a gave a straightforward spiritual analysis of where the market is going, both major investment banks Goldman Sachs and HSBC seem to be listening to what I wrote 9 weeks ago.

The conclusion one might make is not to do what your broker says, do what he does.

A better conclusion is not to listen to your broker at all; listen to your spiritual guide. If you don’t have one, then search for one. Pick a spiritual guide who totally walks the walk and not simply talks the talk.

So what do you do with your money? Don’t invest in the USDollar or in the Euro, for they are simply printed currency with no backing. Gold – solid gold – is better.

– See more at: http://www.lazerbrody.typepad.com/#sthash.EyuZ78lO.dpuf

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In Just Three Trading days the Stock Market Changed!

In just three trading days the market has completely changed its character from a friendly bull market to something entirely different – a bear market or just a nasty correction? My students have avoided this volatility by using simple rules. I have checked in with them and not one of them was hurt by recent stock market volatility.
( Thank GD)

Contrarily I have an acquaintance who lives in an extremely huge house, trophy wife ( with her own travel blog), yacht and too many cars to count who locked the door of his office and drank himself into a stupor of vodka. He did not have a plan and scoffed at even having one.

Which one are you?

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This is a Stock Market To Stay Out of-4,500 Points Intraday!!!

One would have to be on Mars not to have heard of yesterdays volatility in the stock market. Even my wife knew of the 1,000 point crash and later some what of a rebound. When markets are this wild….the sidelines with cash are the place to be. Only fools try to catch bottoms without a plan.

I had many thank yous yesterday from those I taught how to stay on the right side of the market. These investors did not have the emotional swings that so many did.

The volatility is immense!!!

Dow futures moved over 4,500 points intraday today

from zerohedge

4000

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Importance of Post Stock Trades

I can not stress enough how important it is to study all past trades as well as winning trades that were missed. This really is the best way to improve. I have my written rules yet stock trading is still somewhat of an art.

Post analysis during times of stock market sell offs make you a better trader. Trend following and stock trading take years to learn and internalize. It is much harder than college or university. I completed my degree in 3 years…however when I analyze my trades I see my emotions come to play. That is why I write everything down when putting on a trade as well as when adding to them….

Do yourself a favor…study …study…and study….

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1929 or 1987 or Are We in for a Bounce in the Stock Market?

Guess what…I actually had this question posed to me after Friday’s action. No one has a crystal ball but for quite a long time I have been out of this choppy grinding market. I recently had a post about Apple before it imploded. I would assume students that followed the rules in which I taught them have avoided this selloff. There is tremendous complacency and now questions are being asked why did the selloff occur on Friday…UM>>>>.

Could it be China only the worlds 2nd largest stock market

Could it be Greece…( soon Spain…Italy…Ireland..Portugal)

Could it be complacency…

Could it be greed…or I forgot..which I was told..We are in for a Super Cycle. I can stand a 20% selloff. Well I am so glad they know it can only be a 20% selloff.

The facts are very clearly:

The Stock market has been down on successively higher volume

Inability to rally much

The biggest Fact

When the Stock market that refuses to rally from a deeply oversold condition is a dangerous market.

I do not know what Monday or any day will bring…anything can happen and one needs a complete trading plan.

I am using this time to study past trades that I took and those that I missed in order to better myself. This is not a market I want to trade right now..

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Most Stocks Down 2.39% Less Leading Stocks

Sure the market is healthy! Why are you worried…That was a call I had yesterday…However now we have 10 Distribution when in the past 6 were enough to tip the market. More so the Nasdaq is now well below it’s 50 day moving average and the SPY is sitting on it’s 200 day moving average.

The 200 day moving average is really the dividing line between bull and bear markets….The word Deflation is screaming as one looks at the price of crude to copper.

Mike Scott and IBD ( investors business daily group leader) did an interesting screen I today and found that the average stock in the Marketsmith database is 21.39% below it’s 52 week high. This shows that a smaller and smaller number of big cap stocks are preventing the major averages from looking even worse. This is typical late cycle action as the market gets narrower and narrower. I see little reason to be taking positions right now. Cash is looking much better!

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