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  Trader Lyn 12:30 pm on November 28, 2011 Permalink | Log in to leave a Comment  

  We are headed for disaster or an opportunity are you prepared? 

  The last disaster the saw Dow plunged all the way to 6,500 and the Standard & Poor’s 500 collapsed to just below 700 followed by  the All Ordinaries here in Australia which plunged to 3,000 points.

  What is interesting in the last 12 years we had 2 massive stock market crashes it’s happening every 6 years 2002 recession  2008 Recession 2014 behold the future.

  Why have I been so bearish? Because governments and central banks around the world have borrowed, printed, and spent far too much over the past few years bailing out anyone and everyone.

  It stopped a massive meltdown in global capital markets but for how long? the PRIVATE credit crisis has turned into a massive SOVEREIGN credit crisis.

  Ask yourself “Who now controls the credit markets who are these people that own the printing press and what is their plan?

  They have nationalised the debt through bailing out the financial companies that were about to fail a failure would’ve shut down the Global credit markets overnight remember those companies

  American Insurance Group, Citgroup, Fannie Mae, Freddie Mac, Ginnie Mae and much more.

  Who really knows what that end figure is how many Trillions have been spent to rescue them we will never know through their accounting rules of offsetting debt not marking it to the market the real loss is never exposed.

  Now, the next stage of the crisis is taking down country after country, bond market after bond market, and even government after government!

  European bond markets are in free fall from Spain to Belgium to Hungary to Italy and Greece. France is on the verge of losing its AAA rating, and  Germany the stronger nation can’t seem to find investors for its bonds it’s causing borrowing costs and debt costs to rise, pretty soon they won’t be able to meet the interest payments on the debt.

  New news coming out of Belgium and Austria has crushed their bonds And now the bailout of bankrupt Belgian bank Dexia may fall apart, which just could hurt France’s AAA rating and then who else does t hurt?

  We have seen the collapse of MF Global a global derivatives broker who were also a primary dealer in treasury securities they are the 8th largest bankruptcy I the US.

  Then more warning signs of global manufacturing and service sector activity slowing as China confirmed this last week releasing PMI at 48 below the minimum level of 50.

  The last time these indicators were going haywire like this was a warning sign of a recession.

  There are lots of opportunities in a recession that’s why I love the stock market it’s the only place I know of,

  where you can make money on a falling asset so collapses like Bear Stern, Lehmann Brothers, American Insurance Group, Fannie Mae ect that saw their shares fell to pennies on the dollar in just a few months meant there was huge profits for those that bought the insurance policy’s, that invested on the opposite side. Ah time to pay attention and watch what the smart money is already doing yep betting on the downside again.

  

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  Michael Brook 12:28 pm on November 28, 2011 Permalink | Log in to leave a Comment  

  Intelligent decision making and emotions – essential ingredients to a profitable trade. 

  Many traders believe that the more they control their emotions the more they can make better trading decisions and make more.  After making a lot of trades they will have experienced a range of emotions and they can come to the conclusion that the emotions are the problem. They may also have spent some time in different markets, some of which support their trading style and some of which don’t. This will sensitise the trader to the emotions of making money and losing money.

  Recent advances from the world of cognitive neuroscience have proved that emotions are essential ingredients to good decisions making. Much of this work has been done by Antonio Demasio. Studies have been done on people who have because of some form of  brain injury are unable to experience emotions.  They are able to make conscious rational decisions but are unable to experience any emotions about those decisions or an emotion about the outcome of the decision.

  The results of the study of these individuals reveals that they are unable to make even the simplest of decisions.  The lack of an emotions in the decision making process caused them to be paralysed in the face of data. One study of people who are unable to experience emotions called the 2 deck gambling game is of particular interest to us as traders.

  The game involved 2 different decks of cards, one had higher risk and reward and one had lower risk and reward. Each hand involved the winning or losing of money according to the deck that was chosen.  Normal people who play the game naturally gravitate towards the lower risk and reward as the emotional feedback mechanisms that are present in them seek to regulate the intensity of the experience. Individuals who are unable to experience emotions do very poorly at this game because the feedback mechanism is no present.

  The implications of this research are immense.

  Firstly, Intelligent decision making is impossible without emotion. The presence of the ability to experience emotions is fundamental to making good decisions regarding risk and reward for risk.

  The greatest implication is that evolution has handed to us a very rich automatic system of rapidly solving problems intelligently that we can be presented with that we can’t solve biologically. Emotions are automatic and they are essential to quickly solving problems. By using emotions to provide guidance to the conscious mind this allows problem solving to be rapidly sped up thus aiding survival. The lack of emotions stops good decisions making in it’s tracks.

  As traders we have to evaluate data rapidly and efficiently in order to profit from the patterns that present themselves in the market. It is the combination of our emotional responses to the information and our emotion process that enable us to make good trading decisions.

  The truth about emotions and trading is that we should be relying on them more and not less.

  Expert traders know how to use their emotions to their advantage and know what to reward themselves for emotionally. They reward themselves emotionally on the execution of their trading plan and over much longer time frames.

  This is different to novice traders and how they use their emotions.

  Expert traders use their emotions to:

  • Reward themselves on the execution of their trade
  • Reward themselves on their execution of their trading plan
  • Reward themselves on the execution of their trading plan over a large period of time

  Note the difference between this and novice traders.

  Novice traders use their emotions to:

  • Get excited or depressed depending on their profit or loss on an individual trade
  • Get excited about their trading over  a short term.
  • Avoid creating a trading plan or don’t have one.

  This is covered in much more detail in the High performance trading course. Check out the Stockcourse and Trading State website for the next course.

  If you are experiencing difficulties with emotions in your trading, Trading State can help with coaching. Contact us to assist you with using your emotions in your trading in a more helpful way.
  Happy Trading!

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  Trader Lyn 11:40 am on November 16, 2011 Permalink | Log in to leave a Comment  

  What the Insiders are up to.. 

  The European dilemma is just an extension of the U.S -  financial crisis that began in 2008. Now the explosive acceleration is just starting or rather continuing. The realization of a European debt default and a slowdown in Europe will effect America, China and us here in Australia.

  Italy has seen interest rates soar, then fall, then climb again over the past week, with an auction Monday producing a high yield for 2 year debt at 6.29%.

  That’s better than the 7.20% blowout last week, but still unsustainable for financing a 1.9 trillion-euro debt.

  The hedging strategy that the banks use is only as safe as the insurer to pay out remember (AIG) American International Group. Here is how it works – banks that hedge or called “nets out”  only really expose on their books their risk to the Insurance policy, this allows them to take on more and more risk.

  By buying Credit default swaps (heard of them? this is exactly what caused the failure of AIG, the biggest global  insurance company that had to have a bailout by the FED or the banking system as we know it today wouldn’t be here)…Yep it’s that serious.

  That’s why the prevention of triggering the credit default swaps in Europe is trying to be delicately engineered as the risk to the banks will explode and implode.

  If the FED didn’t step in in 2008 to bailout AIG all the banks would’ve collapsed lucky for that printing press, one of the best assets they have …or is it?

  Well Europe doesn’t have their own printing press, so they may have to rely on the FED to wire them some money (you know that electronic type where you just push a button and magic you have credit.)

  Just add it to the $14.7 Trillion …( a few more trillion won’t hurt will it?)
  The Global financial system or the ones that control it are just an inflection of what happens on a smaller scale down the line with the pawns in the game.

  One thing I learnt with organizations that run or control things is that corruption always starts at the top. So it does not surprise me at the corruption and lies we are seeing from individual companies.

  Back in 2001 when Enron was collapsing a buy rating was issued at $65 then $45 then $25 as I recall it, the last analyst to bail on Enron pulled his “buy” rating as the stock hit $2.

  The same thing I have been seeing today, and what should really scare you straight is the current percentage of analysts who still rate stocks a “buy” as their share prices plummet 50% — 70% for Citigroup (with 10% “sells”), and 38% for BAC (with just 4% “sells”).

  The same thing happens here in Australia as I remember also Babcock and Brown and HIH Insurance.

  So who are we listening to? by doing some simple research we can detect the lies. How so you may ask?

  Once you know how to recognise the signs, you can see how tactics used to offload shares to the uninformed investors, obviously the insiders are selling and they need new buyers to take their falling shares off them.

  Here’s a current example (GMCR) Green mountain coffee roasters after rising from $30 to $110 in 8 months insiders started selling huge amounts of shares owned,  an alarming amount in the millions at the same time analysts were recommending a buy on the stock.

  What I saw just like ENRON was a deliberate scam to offload shares to the uninformed investor, on top of  that they were taking the opposite trade, oh yes shorting the stock. It became evident last week when the stock fell from $70 to $40 that they were cooking their books just like ENRON.

  You see the insiders know what is going on well before the public do they are always the first to act when they have information that is only known on the inside.

  I pay close attention to have a deeper understanding of how these games are played and where I like to play them is doing what the insiders are doing,  so I too bought a put option on GMCR that netted me a gain of $400% in a week.

  If you were long on the stock, most of your wealth was wiped out in one day and who took your money?….The insiders.
  
  It’s time to get smarter. The only way to profit is to follow what the insiders do.

  It’s a simple process that can often be detected just by doing a little bit of research on a recommendation, not only will it save you from a loss and keep you out of a bad position but it gives you an opportunity to profit also.

  So despite the corruption and manipulation going on you don’t have to be disheartened, there are endless opportunities out there for us to trade.

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• 

  Trader Lyn 2:31 pm on November 10, 2011 Permalink | Log in to leave a Comment
  Tags: bear market ( 2 ), economic crisis ( 2 ), economic meltdown, economy ( 3 ), europe ( 2 ), Federal Reserve ( 2 ), global economy, greece ( 4 ), greek debt, italy ( 4 ), Lehmann brothers, MF Global, protection, stock market crash, Trading ( 9 ), trading the downside   

  Greece, Italy, what next? 

  Market contagion spreads to more European countries with Italy on the brink of collapse, Italian 10 year bond yields rise above 7% which is widely deemed unsustainable, Italy’s debt is E1.9 Trillion and at 120% of  GDP and in need of 360 Billion in 2012 just to pay loans… but why should we care about all of this here in Australia?

  Why are our banks down 4% today? because we are part of the global dominos, so it’s important that we understand the risks to us at home.

  In my opinion, Italy is too big to fail and too big to save, sounding familiar? a bit like Lehmann brothers, on steroids. Four years on now from the major stock market crash and history is on the verge of repeating it all over again.

  Just last week MF Global collapsed. MF Global were a trading desk for the Federal Reserve.  How did it happen?  Greed, all because of leveraged risk.

  There is only one way we can save ourselves get on the ride down and profit. You can’t deny a world economic meltdown is not an ideal situation and has many adverse affects on everyone in the world, however – there are opportunities we can take to use this as our protection against this mess that the people & institutions who are ‘supposed’ to be protecting us, have created.

  We really have no choice but to take things into our own hands.

  Take a look at my video update at http://youtu.be/dxJu2HfZVBE

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• 

  Michael Brook 6:11 pm on November 3, 2011 Permalink | Log in to leave a Comment  

  The changed nature of the market and price manipulation on the ASX 

  Traditional forms of technical analysis have been practiced for decades with limited success. Most of the technical analysis methods taught to the public currently, have not changed much for many years.

  The entry points on patterns and trendline breaks are fairly easy to predict and the stop loss calculations most traders use are limited to a few methods.

  However, the nature of the market has changed and the speed with which price moves has made the implementation of a conventional trading strategy much more problematic than it used to be.

  Algorithmic trading has delivered an eightfold increase in the number of share transactions on the Australian stock exchange in just five years – but sharply reduced the size of each deal as disclosed recently by the ASX.

  Trading statistics published by the ASX show that close to 1500 transactions a minute are being processed, compared with barely 200 in 2005. The weekly range of motion or average true range of a stock like Rio Tinto has increased on average 4-5 times compared with its ATR in 2005.

  However those averages disguise peaks of activity, most often observed at market openings and closes. In 2006, the number of changes in the order books (buy and sell orders) peaked at about 2000 per second, while in the last year they hit 12,000 per second. For comparison, the current system has the capacity to handle up to 20,000 orders per second. If it continues to increase at the current rate, it will reach capacity by the end of this year unless computing power increases at a greater rate and the ASX stays ahead of the game.

  The ASX would like the trading market to believe that the steep climb in the number of transactions reflects algorithmic traders breaking up a buy or sell order into hundreds of smaller deals that can be executed simultaneously, so that the market price is not changed significantly by their activity.

  However, as this article will show, the other use of algorithmic trading programs is to create rapid movement of price to ensure that traders using traditional (known) trading methods are either trapped into bad trades or have their stops hit before the price rises.

  In short, algorithmic traders manipulate the price in order to disadvantage traders who are unaware of the danger to their trading balance.

  In conventional trading methodology, traders are taught to enter and exit a trade in a finite number of ways. Trading methodologies are widely taught and freely available in print and from trading educators. Entry criteria normally include breakouts from flags, pennants and triangles, falling resistance line breaks and rising support breaks.

  Exit criteria, including placement of stop points are also widely known. These include but are not limited to penetration of a rising support line or falling resistance line, the first major low preceding the entry point, and an average true range trailing stop. It is also widely known that most traders trade emotionally. After a trade has run past their entry level, many traders will put their stops at the entry levels to make the trade become  “risk free”.

  Given the limited number of trading methodologies that are commonly used, if you were in the position of a competitive algorithmic trader and you had the ability and capacity to move price on an instrument, you would move it to counter the commonly used methods, too.

  If you were a football coach and you had the opposition’s playbook, you’d use it, wouldn’t you?

  In today’s high frequency marketplace price can move very rapidly. This is often done to the detriment of traders using traditional methods as the following charts show:

  

  Above is the chart of Watpac (WTP.ASX). I would like to draw your attention to the price action on the 17^th and 18^th of January. In two days, the price moved from $1.90 to $1.95 down to a bottom price of $151.5.  That is a 28.7% movement in the price of a top 300 company.

  Did the fundamentals of the business change 28.7% in 2 days? Did the market segment interested in Watpac jump schizophrenically from euphoria to despair about its future value in 2 days? How would the valuers who determine the price to earnings ratio explain this? What possible explanation could there be for the rapid upward movement and rapid downward movement followed by settling at long term average, other than price manipulation?

  The price action on the 17^th was designed to trap traders into poor long positions. The price action on the 18^th was designed to trigger any stops long traders may have had. This price movement on the 18^th was designed to take out all stops set below the long term trend line, any of the previous three major lows and any traders who had entered in the previous several months who panicked about being down by 20%.

  And it worked as shown by the volume traded on the 18^th.

  

  Another common pattern of price action that indicates that high frequency traders are manipulating price is the rapid price movement of an instrument prior to an upwards run. Find above a chart of STW Communications Group (SGN.ASX). I would like to draw your attention to the price action on 7 May in the centre of the chart. This price opened at 84 cents and plunged rapidly down to 76 cents before closing at 88 cents. The range of motion doubled the daily average true range.

  Since many traders set their stops at major lows, the major lows on the 22^nd of April, 24th of March, and 19th of March would all have been triggered by this rapid price movement.  Often these rapid price movements occur at lunch time when traders are away from their desks and are unable to prevent their stops from being triggered.

  This type of price action is frequently used as the trigger before an increase in the price. Its purpose is to shake out stops and pick up cheap volume prior to the price being marked higher.

  As can be seen from the above two examples, price can move very rapidly in the current market and is instigated often by high frequency traders. These are only two examples of the hundreds that can be found on the ASX.

  While this represents a grave threat to the uninformed investor, to the informed investor it represents an incredible opportunity. If the market manipulators change the price of an instrument in repeatable ways, then this can be used to the advantage of informed and educated traders. Currently, market manipulators do manipulate the price in a recognisable manner. Therefore, if a trader works in harmony with them, the trader can enjoy the benefits of the manipulations, instead of having their stops hit just before the price is marked up.

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• 

  Trader Lyn 1:47 pm on November 3, 2011 Permalink | Log in to leave a Comment  

  Why you need to wake up and pay attention. 

  Why do you need to know what is happening in the world?

  Sometimes we may not want to read or listen to  news, after all it can be mostly bad news we are hearing most of the time.
  If you’re a carpenter, a cleaner, a hairdresser or a taxi driver you are the first that should know and anyone else with investments tied to real estate or the stock market. It doesn’t matter if you are employed or in business, we all have a responsibility to pay attention to what is happening in the world around us.

  Ask yourself- What would be the implications here in Australia to a housing decline or bubble in China? If that were to happen, it would hurt us here in Australia via our exports and our mining industry, so I have been keeping my eyes open overseas.  You need to dig to find the right news as it often doesn’t necessarily hit the global headlines and often what you find in mainstream media is manipulated.

  I found this article in the Bangkok Post..

  “Hit by weak demand and lack of funding, developers have slashed prices for some new projects in the city by more than 20 percent, the China Business News said, causing an outcry among those who bought at higher levels

  In the latest incident, some 200 home owners on Wednesday besieged the sales office for a project of leading developer Greenland Group, demanding refunds, the Shanghai Daily said. “We require a refund because the loss we are suffering now is too great for us to afford,” the paper quoted a protestor as saying. He paid 17,000 yuan ($2,678) per square metre last year and claimed the developer had cut the price by around 30 percent to boost sales.”
  
  Money morning also quoted some interesting facts on our current housing market here in Australia. Kris Sayce wrote “Back to the falling Aussie housing market. Now that ANZ economists have finally admitted house prices are falling. When owners see the price starting to fall they fear it could fall further. So why wait and potentially sell at a lower price when you can sell now at a higher price.

  Sure, volume increases when the price rises too. That’s the rush to buy before the price goes higher. We’ve seen that with the housing market too… now we’re seeing the reverse.

  Trouble is it’s pretty hard for most economists to do that as they spend most of their time playing with GDPs, CPIs and other irrelevant statistics. They don’t understand that economics is all about human behaviour (how people think, act and react), not spreadsheets and numbers.

  And that’s why every last one of them failed to predict Australia’s falling housing market.”

  The activity of more sellers than buyers in the property market will cause over supply and prices to fall the investors that flip properties may cause an oversupply which has fuelled the real estate sharp rises. And now the first home buyers are becoming scarce 2009 fuelled the real estate rise driven also with the 21K home grant incentive that’s gone now reduced to $7K.

  Can we truly be in for a correction? I think it’s important to consider that we do have one of the highest levels in real estate values and our first home buyers are being priced out of the market. We have seen the rest of the world’s real estate markets correct, when it is our time wouldn’t there be early warning signs to look for? maybe they’re already out there.

  There are more effects from either a full or partial Euro collapse in the future which is  spreading unknown contagion for all of us. In some way it will cause a  slowdown or decline economically.

  The bailout out is not clear. It’s unclear how Italy will fare next. MF Global, a bank and brokerage service just went into chapter 11 bankruptcy. They effect debt owed to London and the US Banks like JP Morgan. It’s like a cancer that spread in 2008 -  one bank after the other falling like dominos, the knock on effect of who’s next in danger.

  And the US debt is no better. A recent downgrade in August from Moody’s. Their debt has risen over 14 Trillion USD and that’s  without Medicare or Social Security. The US is flat broke, how long can the Federal Reserve  push a button electronically to send money to companies (well the banks) for “Quantative easing” as they call it??  I call it “how to blow up another $6 Trillion dollars“.

  I love hearing what Hardy used to say to Laurel “Another fine mess you have gotten us into”

  Governments and politics and banks have gotten us into this global mess and have no solution that will get us out. Maybe they’re not supposed (and that is their true intention) but we can have a fun ride down like 2008.

  If we watch what is happening we can prepare ourselves for the greatest opportunity,  if we prepare ourselves and study what is happening we will make the right decisions and use this as an opportunity and not become a victim to bad news.

  Many economists I have listened to for years are saying the same thing,  one of these is Harry Dent.  I have just finished reading his new book,  the “Great Crash Ahead”. While none of us have a crystal ball, it is a very interesting read.

  Dent is predicting a 2012-2014 housing collapse here in Australia by 50%  and a retest of 2009 stock market lows. I wouldn’t like to be that precise.  I believe it’s coming after a retest of market highs. The Stock market is manipulated. The professional money push it higher to sell and offload they also change their positions to the downside.

  I believe this to be one of the key factors,  watching what they buy and they do this usually in market rallies, not falls. They hedge or buy puts which are at their lowest volatility. Makes sense doesn’t it to watch the “insiders”?

  I urge you to rent out the movie “The Inside Job”. It’s a documentary exposing what happened in the 2008 Lehmann brothers collapse.

  The smart money knew what was coming so they sold most of their CDO’s (Collaterized debt obligations) which were toxic mortgages to new buyers like Lehmann brothers,  Meryl Lynch,  Wachovia Bank to name a few and immediately hedged which means they bet on them falling. Why would they do that? Because they knew the risk of default was inevitable.

  What is happening today has an eerily similiar picture of what happened in 2008. So what can we do? We all live busy lives, kids, houses, finances, work, holidays- it seems we are always on the go. I can’t stress enough how important it is to go out and do research on the financial world, because ultimately you are responsible for deciding how you invest and live your life.

  You shouldn’t take advice from any one person, not me, not your broker, always ask questions and look at the bigger picture. The thing I love about being a trader is I have a choice. I can’t change the rules, laws, bills or taxes that are put upon me, but I can keep my eyes out for opportunities to trade, regardless of the market direction.

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