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Predicting price movement and direction is a challenge faced by all traders. There are a number of news events that will move the market, however the severity or size of the movement is unpredictable. Most traders will stand aside 10 or 15 minutes before and after these announcements.
Non-Farm Payroll is a monthly report on the employment situation in the United States. It is produced by the Bureau of Labor Statistics at the U.S. Dept. of Labor in Washington, and is a detailed summary of non-farm payroll employment. Some of the employment areas in the report include construction, manufacturing, service, health care, government employment, and transportation.
The September data shows all areas declining except for health care which increased by 19,000 jobs. The largest declines were in construction, manufacturing, retail trade, and government. Since the start of the recession in December 2007, the report states the number of unemployed across the U.S. has increased to 15.1 million. Overall unemployment stands at 9.8%.
Among the areas being reported, construction job losses were the largest at 64,000 in September, followed by government at 53,000, manufacturing with 51,000 and the service sector lost 39,000 jobs.
Total employment in non-farm payroll declined by 263,000 in September with almost 20% of the cuts coming from local government (non-education). Improvements actually occurred in construction where job losses averaged 66,000 a month from May to September, and 117,000 per month last winter from November 2008 to April 2009. Manufacturing also improved from 53,000 losses per month June to August, and 51,000 in September. The numbers are not seasonally adjusted.
For new traders the higher job loss numbers mean less consumer spending as disposable income is reduced, which translates to lower corporate earnings and lower stock prices. Higher umemployment also means higher benefit costs to government. These reports are an important part of the economic barometer for any country, but more so for the United States because of its position as the worlds largest consumer group.
The next report will be available in early November.
In this age of economic turmoil, severe change is being forced upon a large segment of the population. Corporate bankruptcy, wasteful government spending, lay-offs, and plant closures are items we watch and read about everyday.
What can anyone do? How does a person protect themselves and their family? One way is planning ahead and increasing or expanding individual intellectual net worth. In other words, expand your horizons with continuing education. We are creatures of habit and we resist change. It is far easier to work with one or two years experience, 25 or 30 years in a row, then it is to change. Of course people have hobbies, so we aren’t wasting all our time. We golf, travel, do crafts, but how many plan for the castastrophe of a job loss?
Not many, so when it does happen, it is devastating. It’s also a lot of unnecessary pain. If we plan ahead, and do it from a position of strength, with time on our side, we can be prepared. Even if we never face a loss of income, developing a second, reliable revenue stream makes good sense.
Trading can be the answer. It offers flexible hours, it’s affordable, and readily available. It presents a challenge, no queston about that, but it’s a tremendous learning opportunity. For some, the idea of trading futures seems totally ridiculous, and way off the clock.
But if you think about it for a second, maybe not. It doesn’t require a fancy education. Many working class people have become very successful traders and enjoyed the benefits for years. Trading is a business. As a private trader, you become self-employed, and can take advantage of the many tax breaks your larger corporate brethern use. You gain control of your time and become your own boss. You grow as a person through the learning process, and that will stay with you forever.
So it’s not about whether you can or can’t do it, but whether or not you want to, and can get over the fear and anxiety about doing something completely new. Desire is a powerful emotion, and to step out of the box, people need a very big helping of it on their side. Many of us think nothing of buying a new car, and signing up for three or four years of payments, for something that will be worth far less then it cost when we finally do own it.
Learning to trade is not like buying a new car. It is a beginning, the start of new segment of life, the result of a serious thought process and one that more and more people are embarking on. Your turn is next. See you in the market!
The simulator is one of the most effective training devices ever invented. It allows students to practice their trade, whatever it is, without risk, at their convenience, in real time conditions. The aviation industry’s use of simulators is widely known, and is very successful.
The most common way new traders gain proficiency is also by trading “in sim.” The trading platform is connected directly to the exchange so the price action is real, however, there is no connection to a broker, so the wins or losses are “on paper.” This is ideal because it exposes students to the market as it unfolds every day, and ties the chart signals to the buying and selling process.
The simulator allows you to get the feel of trading. In addition to learning to operate the buy/sell functions, you begin to experience the emotions involved. Trading in sim should be treated the same as trading live through a broker. It is the practice of entering and exiting trades, and all the management in between. In order to develop the discipline required when using real money, traders must learn to recognize the symptoms of various levels of emotion. If these emotions aren’t dealt with, the market will show no mercy toward undisciplined or careless behaviour.
For some traders, simulation is a place to return to when habits need adjusting. It’s not uncommon to focus on certain parts of trading at the expense of others. For instance, traders can develop the habit of widening stops in certain market conditions. It works some of the time, but not always. Time in sim can help get the discipline back.
Markets tend to change over time and certain strategies can become less effective. By going into sim and practicing a new approach, traders can maintain an edge. When markets are slow as they tend to be during the summer months, a bit of boredom and complacency can creep up on a trader. Staying in sim during these type of conditions helps avoid “manufacturing” trades and taking foolish risks when using real money.
Trading is a long term game of probabilities and traders need to be seriously dedicated to their craft. It takes time to develop a trading style, learn the discipline, and achieve consistent returns. Simulation is an important tool guiding all traders to success and should be used without hesitation as often as needed.
Everybody knows the old cliche about patience and all its virtues. In trading patience takes on a whole new meaning. When you combine it with greed, fear, and a fast paced market, you really begin to understand how important it is. For new traders this can be a very tough lesson to learn, but it is one of the most valuable” tools” you can have. In fact, without this ability your success with be seriously diminished.
When we enter a trade, we have expectations, and we make assumptions. The set-up or signal meets our criteria, volume is acceptable, price action is favourable, so all things considered, the trade should deliver a profit. But what if price goes against us right after we get in? The first emotion for new traders is usually fear, and maybe some anger or frustration, depending on what kind of a day its been, and we want to do something. Do we exit early? No, price is not anywhere near our stop. We need to let the trade breathe. Two or three ticks against is no reason to panic. Four, five, or six and we might want to plan an exit, but still need to practice patience and staying calm, and keep listening to the moderator.
Now what if price reverses and goes in our favour? Now we are fearful, relieved, and greedy all at the same time! What if it’s only temporary and price goes back against us? How much profit can I get out of this? New traders must learn to control all emotions, particularily fear and greed. Push them out of your mind, and insert a calm and patient demeanor. It takes a lot of practice and many hours of screen time, but it is doable. Your emotional state does not affect the market. It doesn’t know you, doesn’t care. If price continues in our favour, we have a target that will trigger an exit. Do not try and squeeze more profit out of a trade without some very rational motivation, such as a moderator suggesting there is more to go. Greed has cost new traders many points over the years.
Another example is learning to sit through periods of slow market movement without jumping into a trade just to stay busy. There are times especially in the summer when markets can drag a bit, with very little movement, and therefore nothing to trade. Be patient. Do not imagine what you want to see. Listen to the moderator, and follow his or her example. They have been through all of this before.
Learn to focus on being calm and in control. You are in a game of probabilities. You are confident. You don’t really care which way it goes because it’s all part of the game. Think long-term. There are hundreds more trades coming down the road. Have fun, enjoy what you are doing, and keep learning.
Many people think trading is a highly complicated, technical business, and it is, but believe it or not the tech. side is only about a quarter of what goes on. By far the hardest part of becoming a good trader is mastering the discipline, which is control of feelings in the heat of the moment. The two prominent emotions are greed and fear, not necessarily in that order. Traders are naturally fearful when losing, and greedy when winning. Pretty basic human emotion, but highly dangerous in the world of futures.
To help develop the correct mind-set, students are taught to practice following a trading plan. The plan will be a written document, listing some rules. For example, if you lose 3 trades in a row, the plan might say it’s time to take a break for the rest of the session. You might find certain trade set-ups that you aren’t comfortable with, and elect to not take those trades. When you win two or three trades in a row, you might stipulate closing down for the day and taking your profits home with you. Protecting profits is a huge part of the discipline good traders practice.
There are as many variations to trading plans as there are traders, but the important thing is to have one, and learn to follow it. It sounds easy enough, but again, writing something down and actually following it when the swamp is full of alligators are two different things. Some serious thought must be given to the plan, and it must be reviewed. Every trader is at a different stage of learning and experience, so a plan is unique to the writer.
A post session review along with the trade results of the day will reveal how well you followed the plan and what you need to do to improve. Emotions have a habit of creeping up on you. One minute you are relaxed, following your routine, a couple of nice wins under your belt, then a trade goes against you, and hits your stop. You feel a shock. You were sure this would be another winner. Shock turns to frustration, turns to anger, and you decide to get even. At this point you need to stop and recognize what you are feeling. It’s harder to do than you think, but you must stop. The market has no feelings, and doesn’t care whether you win or lose. You are the only one that does. If you elect to chase the market, it usually ends badly. Rational thought does not prevail, and you will take the next trade out of frustration. It will usually win. You have another chance to stop. If you don’t recognize what you are going through, you become a gambler. The market loves gamblers. They have no edge and are simply pulling the lever.
The good thing about fear and greed and anger and all of the things we humans feel, is that the feelings repeat themselves and so does the market. It’s either going up or coming down, or going sideways, and our emotions are connected to those movements. Traders learn to recognize the symptoms, and develop the mental toughness to put a stop to anything that takes them away from the psycological balance needed to trade.
Consistant mental discipline can and must be learned and practiced through all market conditions. It’s the biggest part of winning at this game, and quickly separates the winners from everyone else.
Everybody who has ever considered investing has heard of stocks, bonds, mutual funds, and probably futures contracts. It’s interesting talking to people about trading in general. They often mention their experience buying and selling stocks, the implication being that they understand something about trading from time spent in the stock market.
My experience has been the opposite. I have learned about stock portfolio management from trading the S&P e-mini, not the other way around. It’s nothing more than the number of transactions involved and observation. The e-minis are fast, with lots of volume, volatility, and many,many opportunities to buy and sell.
Compare the average number of stock market buy/sell transactions a typical investor makes in a year and how fast those stocks move up or down. Now there will be a large variety of averages, but lets use 3 trades a month as an example. That would produce 36 trades a year, give or take.
On the S&P e-mini, we make 4 to 6 trades a day, 5 days a week. Using 5 per day as an average, times 20 sessions a month, that produces about 100 trades per month, or 1200 a year. When you consider that we are looking for similar signals, the difference becomes apparent.
Now of course we don’t deal with earnings reports or anything to do with individual company performance, or lack thereof. Our scrutiny is purely technical. Remember, we are trading an index, not individual stocks. A significant amount of index movement is news driven, thus the volatility.
On that basis, we get a whole lot of practice looking at support/resistance levels, patterns, volume and price action. Our discipline is tested daily due to the fast pace and number of opportunities, we encounter. The market has a certain dynamic and it does change. You get used to trading one way, it changes, and you have to change with it.
So when I switch to the stock market, looking at individual charts, I often see price action that took several months to occur, but would happen in one day on the index. It doesn’t make me an expert stock picker by any means, but I find the comparison interesting. There’s a sameness to it, but in slow motion.
As a student, this view of one little corner of the massive world of commerce, provides a continuous learning experience, expands the education process, and supplies an entertainment component that is a lot of fun.
Many people have heard traders refer to “going long” or “shorting the market”, but these terms can be difficult to understand unless you use them on a regular basis.
In trading futures contracts, we have the ability to trade whether the market is going up or down. In the case of the S&P e-mini, the index movement is tied to the S&P 500 and goes up and down in conjunction with buy and sell orders.
We are enticed into a trade by several things. We follow what the market is doing by watching chart movements, and inside the movements are specific signals to buy or to sell.
If we get a signal to buy, we are said to be “going long.” We buy a long position usually at a pre-determined entry point, and expect the market or index to go up, thus producing a profit for our trade.
If we see a sell signal, we go “short”, again usually at a pre-determined entry point, and expect the index to go down and give us a profit.
Our vehicle to play the market is a contract. New traders begin with one contract, or a single, and learn to buy and sell using simple strategies. Once a consistent level of success is achieved, traders add additional contracts, and the strategies become more complex.
When we buy or bid a certain price in order to go long, we have an exit point already in mind, so when the market goes in our direction, we are automatically taken out at our profit level. The opposite applies when we go short, or sell the market. Those entries are called profit targets, and stop loss positions, and can be manually adjusted to suit the circumstances of the trade. If the trade goes against us, the stop loss will trigger and take us out at a loss. Trading is a game of probablities, so not all trades are winners. Through training and experience traders gain an edge which is used in their favour on every trade.
Futures contracts are not to be confused with shares. We are not buying or selling shares on the stock market. This is a futures exchange, and we deal only in futures contracts. They are one of many financial instruments available, and due to liquidity and affordability, the S&P e-mini is very popular.
So buyers bid, and are long the market. Sellers ask and are short the market. There are only three ways the market can go: up, down, or sideways, and it is always going one way or the other.
Many of you who are non-traders will recognize ticks as the little critters that torment moose and deer in the northern bush and can, occasionally end up in peoples hair, especially in early summer.
In Chicago, on the futures markets, ticks are a traders friend. They are how we keep score.
Each point we win or lose, is divided into four parts, and each part is called a tick. Four ticks equal one point. One point is worth $50.00 so each tick, or quarter point is worth $12.50, USD of course. Investopedia says “a tick is a minimum upward or downward movement in the price of a security.” There are lots of securities out there. Ours are futures known as the S&P e-mini.
We also track our daily win/loss position in ticks instead of dollars. The psychology of trading is such that reference to money during the trading day can have a detrimental effect on some traders mental position. New traders go through an array of emotions during most trading days, especially when trading live with real money. Seasoned traders go through the same process, but experience has taught them to handle and control their mental state.
Just remember, ticks are small, they add up, a few at a time, sometimes more than a few, and they are convertible to USD at par.
I don’t know how most people decide they want to become traders, but I think it’s part of a persons evolution in education. In my case, I’ve had an interest in stocks and markets and making money for a long time. I’d also heard of “day traders”, which got my curiosity up.
So, I Googled it. The first name that I noticed was Traders International which led to attending a demonstration of online market trading, and then enrollment in the course. For those not familiar with the term “day trader”, it means trading during the day only, with no open positions held overnight. In other words, you buy and sell within the market session only. In this case we’re talking about futures contracts, specifically, the S&P e-mini.
It seemed a little daunting at first, but like most things, taken one step at a time, it can be learned. TI has an e-course which students complete at their own pace. There is no exam at the end, so no pressure to pass or qualitfy. Once you feel ready, you move to live market simulation, which is attendance in the online trading room for the cash market, which runs Monday to Friday, 09:30 to 16:15 hrs. Eastern Time. You work with a moderator, along with the other students, in a virtual classroom, using charts and watching for buy and sell signals. There is a trading platform used to execute the trades, and although you are connected to the live market, there is no connection to a broker, so all trades are simulated, better known as paper trades.
The moderator and the market now begin to advance your education as a trader. The general rule for going live, with real money, is to be able to make money in sim. 15 out of 20 sessions, and feel confident with your ability and experience. You start with a single contract and as the market pays you, additional contracts can be added. It is a process, it does take time, it does involve a lot of emotion. There is some risk, but you are made aware of the pitfalls, and learn to handle them a little at a time. I traded in sim. for two months, then moved to a single contract, live market in late May of this year. I’ve had some success and some set-backs which is normal. They estimate 6 months to a year before you are capable of making a living at it, and of course that time varies from person to person. I trade every day and love it. It’s fun, exciting, challenging, and the people at TI are great. They do everything they can to help traders succeed, so you’re always in good company. If you want to learn more, check them out at ww.tradersinternational.com/usa/members/barrydesautels Have a nice day!
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