Trading Strategy – How Rob Is Trading Tomorrow

Okay gang, welcome back! Let’s take a look real briefly at a couple of the key Markets and what our trading strategy is for them.

Trading Strategy For The Euro, Gold, And Crude Oil

As far as the Euro is concerned right now, the Euro is in “no trader zone” from my perspective, unless you are absolutely short term scalping this thing, which is not really what I’m looking for from a trade. As long as I’m looking at this I’d like to break down below this inventory retracement bar, over here, or I’d like to get back above the down-trending resistance up above, which is currently around $1.3450 area. So, we’ve got a little bit of action there, and a little bit of range that we need to get through to take a trade there. Right now, no trade, no fresh trade in the Euro here.

As far as a Gold trading strategy is concerned, Gold continues to be in those “watch” ranges I have told you about. We’re not breaking through, so far, above the inventory retracement bar, here, to the upside or the downside. So, that status quo is still intact, here. That’s why I’ve warned everybody about this, because in the big picture, this is still a very, very tight consolidation range. Remember what I told you about this from the weekly chart, you really want to get above the weekly range, here, or below the weekly range, here. Anything in this area, right here, is just going to be more noise and just some pretty violent whipsaws and that can really cause traders some angst.

As far as what we did today in Crude Oil, we got just above the inventory retracement bar, right over here, set last Friday, but it got stopped here at price resistance from the day before. We just couldn’t breakthrough that area that we locked in a distribution inventory retracement bar. What our trading strategy is for this get back above those highs set earlier last week, around the 9870 area, approximately. If we get above that 9870, we have a decent chance of moving up, approximately 80 to 100 ticks, back up over here. Otherwise, I want to back off and wait to see if we can push down below the 9650 area for a move back to 9500.

As far as the Bonds are concerned, something I mentioned to you from the weekend video, we’ve locked in this inventory retracement bar. The target’s already been achieved. We hit that target last Friday, so, we’re already done. We hit the target, all the targets that I mentioned in the Bonds continue to be hit, once the signals are firing off. Now we’re looking for a fresh trade, here, a fresh signal, and right now, we have no fresh signal. We need to get back above here, pull back, and then start to take back off again for the next target up above, but as you can see that is not in place, yet.

Looking At The Stock Index Futures Today And Tomorrow

As we look to the Stock Index Futures, those were certainly the place to be, from my perspective, this morning. As we start off, let’s move this over, I see my indicators were firing off, here, quite a bit throughout the morning and that gave some really fantastic moves to the upside, here.

As we look to tomorrow, our trading strategy is this; we got the Dow, the Russell, and the S&P that all came approximately 50% off their highs, so they were all inventory retracement bars, back there. We need to see what is going to happen tomorrow. Tomorrow is really the key day. Because, with the inventory retracement bar, are we just going to roll right back over again. If so, this Market is still very much in jeopardy. If we can actually push through the highs of these bars, that would be much more likely to a little bit more sustaining for the bulls. So, the bulls are really going to try to push this thing higher. I warned everybody last week that this is that point of no return, this is the area that these Markets are holding on for dear life, because if they get much lower, look out below! There is nothing but air down below some of these, as we talked about. Lots of air down below, and you can see it even more clearly on the Russell, lots of air. And so, these were the last bastions of support, and if we didn’t hold those, this Market was in deep trouble. This is where the big fight was going to take place between the longs and the shorts. So far, the longs are winning in the short-term. Tomorrow’s going to prove to be a key day for me after this inventory retracement bar type days, these distribution bars. Does the Market start to push right back down again? If it does, I’ll aggressively start looking for short-side trades again. If we start to hold and break above the high of these inventory retracement bars, I’ll be looking for a lot more aggressive long-side trades. Okay?

With that being said, you guys have a great night. Lots of announcements to come later in the week, and I’ll look forward to seeing you guys, each and every one of you, in the Live Trading Room tomorrow morning, or in tomorrow night’s videos here. Take care everyone!

Trading Strategy – More Trading, More Action, More To Come!

Welcome back and happy Monday everybody. What a great way to start the week! Lots of trading in the Live Trading Room this morning between Ryan and I firing off lots of things. We talked about this being a great summer to be a trader and this is just the tip of the iceberg. We have so much more to come, especially with this ultra-low volatility as it resolves itself, and things such as the APPL split. Lots of things to discuss and trading strategy to go over.

First things first, with APPL, my thoughts on this continue to remain the same. I am still pretty darn bullish in APPL. In my nightly swing trading video I sold puts earlier, back in May and obviously the market took off to the upside, we had the right idea.  What I’ve been hearing the last several weeks is “don’t buy this because it is just going to sell of really hard when the stock splits”. But I have to be honest, I’m not sure that I’m comfortable with that logic. For instance, I have a brother in law who is an aggressive enthusiast with AAPL and was accumulating shares when it was several hundred dollars a share. He liked it then, you can imagine he loves it now when he can purchase so much more at any given time. There were a lot of people for whom APPL was out of their range before and it’s now in a much more affordable range for them. Plus we have these great opportunities for support that haven’t been touched now for almost 2 months. Lots of rising support which is something I look for in my options trading strategy, let alone trading the underlying instrument.

If I am going to trade the underlying instrument, I would rather see a pullback, personally, as a short term trader. As an investor, that is not a factor here, even as multi-week swing trader. But as a short term trader, holding for a couple of days, my trading strategy would be that I would really like to see a pull back to some rising support. From an Options perspective, the moment I can sell puts far enough out of the money I will be looking for whole new fresh opportunities in this once again.

Let’s take a look at the Euro. In the euro right now, we are only about 8 ticks away from an area where I will have an interest in this again. We’re going to see if we can get down below that 1.3580 level at a time where I am awake a conscious and see if we can get some trending back down through. This whole bar, this entire area is an accumulation bar. So, at any given time, there is always a risk of a retracement. What does that mean in English? It means my trading strategy is to trail stops a little bit tighter than I would normally do. I’m not going to give it as much room to run because I know some of the key retracement points are at the top, the middle and the bottom of the wick. Not to mention that this is also the 1.3550 area which is another natural place to see rejection, so we will be trailing stops on any shorts pretty tight.

With Gold, we are consolidating; it had a very tight inside day with another distribution bar. So, we are looking to see if we can get above the 3 days’ worth of highs between Thursday, Friday, and Monday or if we can break down below this accumulation/distribution bar and that is what we are going to be focused on going into tomorrow.

Crude Oil is looking wonderful. Crude Oil is right back near these recent highs. Our trading strategy is going to be to see if we can get back above this 1.05 level and push our way back toward the 1.10. There could be some great trading up there if we could make that happen. Right now we went pretty far, pretty fast, we have a stochastic spike and due for a little bit of a retracement, but if we keep grinding up there, especially tomorrow in advance of the Wednesday inventory report, we’ll be looking at trades there as well.

As we take a look at the Stock Index Future, we’ll start off with the Russell. It opened up and just took off like a rocket, firing off on all of my indicators. Everything was firing off to the hilt. What a great way to start the day between Ryan and I with the Live Trading Room. Then as we continued on into the session, we got a little bit of selling into the afternoon. Some of the markets became distribution bars, such as the DOW. Not quite on the Russell, but the DOW and the S&P became distribution and doji stars, so periods of indecision.

Looking At Tomorrow’s Trading Strategy

So, what is going to happen tomorrow as the markets play catch up to this area. My trading strategy is kind of the same strategies that I shared with you last week. That’s just it. The strategies are very consistent, and that is what we are looking for, consistency. Most traders are struggling from a lack of consistency. Yet, I give the same message time and time again, we see generally the same results and that’s what we’re looking for. So, what I am going to be doing walking into tomorrow is looking to see if we hold these speed lines walking in the door here and then start to take off again because certainly very few people are believing the run to the up side. From my perspective, in the weekly charts, we pushed above the resistance here, the distribution bar so I was looking for further upside. So, as you can imagine, I had no problem looking for longs into this morning, in fact that is the only kind of trading that Ryan and I did was long side trading.

Now, as we go into tomorrow, the trading strategy is going to see if we do start to break back down below the slow speed lines on some of these charts. Remember, they’re all going to rise up tomorrow morning with this parabolic move. So, if we can get down far enough to actually start breaking below those.

Otherwise, I am going to be right backs to looking for long side trades again, if we start firing off those setups again in the morning. So that is kind of the thing, watching where we are in relation to the speed lines, if we start getting down below, into the kind of neutral zone which is between the 2 speed lines, then I might become a kind of equal opportunist and see what the 2 and the 5 minute charts look like for long or short side trades. But nonetheless, the bottom line is, no matter how you slice it, this is just the tip of the iceberg.  We have so much more to come. This is going to be a fantastic summer, between what you are seeing right here and the ultra-low $VIX we’ve got a summer of fun and surprises ahead of us. What a great time to be a trader. Have a great night. I look forward to seeing you again for more excitement in the Live Trading room tomorrow morning or in tomorrow night’s videos. Take care everyone.

Trading Strategy – What Rob Wants You To Know Going Into Tomorrow’s Market

Our Trading Strategy With The $VIX In Mind

First off I want to tackle the $VIX. The thing about the $VIX, and I really want to look back at this to make sure people set their expectations properly. The $VIX has wound up at some pretty low lows here. It’s been here for about 16 months now in a pretty low format the last time it was down that low was back in 2005-2007 then we finally ended up getting the nice crash. The thing is, if history were to repeat itself we could easily go ahead and have several more months here where we’re sitting. When you think about that, there’s 24 months here we have 16 under our belt, we could easily sit here if history were to repeat itself for 6 more months of this low volatility prior to huge volatility expansion and crashing. The reason I point this out is because I’m seeing people take some pretty big bets here early as their trading strategy to try and seize upon a big market crash but as I’ve pointed out, which Is why I want to reaffirm that here, this is 16 months so far but back here this is 24 months of that ultra-low volatility prior to “the end of the world as we knew it’ so to speak with the mortgage crisis and everything. With all that being said, we want to keep that in mind when thinking about our trading strategy. If you’re taking trades with the instant expectation of market roll overs you may be sorely disappointed in your timing. Make sure you can remain wrong longer than the market remains wrong if you know what I mean in a situation like that.

The Euro, Gold, And Stock Index Futures

If you take a look at the Euro, it is something very much on my mind as we are talking about trading strategy. We just briefly dipped below that 1.36 today only to close almost right at it again. We just can’t break that 1.35 80 yet. The 1.35 80 area is what I’m looking to break down below during the European session and/or US session to get really excited about short side trades. For all of you that trade the overnight sessions into the US be on the lookout for that. That’s kind of the key thing I’m looking for. Right now we’re struggling at the 200 day moving average, we broke through it only to rally back to it. Now we’re coming back down but we have gone through that magic 1.36 level and that’s what is so important here. More specifically because of that rule that I have called the 80/20 rule, we’re more specifically trying to get through the 1.35 80.

I just want to update you on Gold as well. I’m looking to see if this is going to become what we call a KOBO, a kick-off blow-off bar. What happens is usually KOBO start off with a big wide range bar then they get several small bars and then they get one more big wide range bar and that’s were all the retail traders jump in and then it will start to reverse back up. Right now we’re just bleeding down, bleeding down, bleeding down since we broke down through my accumulation bar areas here on my rising trend line that I identified for you previously this market just has not looked back. We’ve had the kick-off bar portion, it’s a two phase process. Kick-off and then a blow-off. Well, so we’ve had the kick-off bar now we’ve had several small bars now I want to see that big wide range equal and opposite to the original kick-off bar come down here. That could lead for some great trading. It’s a KOBO and we’re looking to see if that might end up happening here kind of the backend to that trade. Watch for a big drop in Gold there to continue on with this trading strategy.

Finally, as it relates to stock index futures, I just want to point out what’s happening here in the big picture. We’re focusing on a day by day basis because we’ve got two in the two. You’ve got the two that just don’t start going up day after day after day. The S&P and the DOW. And then you’ve got the other two that are seeing some weakness in there and some pausing and not cooking. In fact, I want to show you this weekly chart again because I love showing it. It shows how important these levels are when we are talking about trading strategy for tomorrow. Here we are on the weekly chart, we’ve been here for several weeks, you count them up one, two, three, four, five, six, seven, eight, and now nine. Here we are now, week number nine, we’re back into that channel. We held on for dear life at the speed lines today. As you can imagine going into these the next couple of days my trading strategy is going to be watching the S&P and the DOW start to roll back over, show weakness and the NASDAQ and/or the Russell can accelerate to the downside. Or will the other two rising tides, the S&P and the DOW start to lift us out of this channel, break out above here and we car really look more aggressively at longs.

We’ve got some work to do here though as you can see we’re still in that channel. Last week locked in a distribution bar, this week starting off Monday puts us at an accumulation bar. Again, that bar has all week to close I just want you to see what that looks like on the daily chart that we did. In fact, officially locking an accumulation bar. So you have distribution above, accumulation down below, looking to see which way this thing is going to go ahead and break. The jury is still out on this one and you can tell many people are getting very nervous placing a lot of bets looking at the $VIX now more than ever. I’ve been talking about that since back in January pointing that out to you for various reasons at various times. Well here we are now, a lot of main stream media catching on to the $VIX and a lot of people get nervous in these areas. Until the stock index futures show their ugly head we’re just going to take those small incremental intraday trading opportunities which Is exactly what I’m doing in the Live Trading Room. Outside of that I’m going to be focusing on Gold and of course the Euro.

You guys have a great night, I’ll look forward to seeing you in the Live Trading Room tomorrow morning or in tomorrow night’s videos. Don’t forget that we have a special event tomorrow afternoon sponsored by ICE Futures Exchange and also Trader Kingdom. The link for that is included in your email tonight so go ahead and make sure that you register through that if you’d like to join us tomorrow afternoon. This is the only public even I have scheduled for you guys this week. You guys have a great night, we’ll see you shortly.

Nice Market Moves Right On Queue. So What’s Next For Our Trading Strategy?

Welcome back everyone! Hope you’re having a wild and wacky Wednesday. Let’s take a look here at a couple different instruments and our trading strategy for them. Let’s follow up on a couple of instruments, we’ll look at a couple that we’re looking for movement from.

Trading Strategy For Gold, Bonds, And The Euro

First thing’s first, you’ll recall Gold. Gold, I mentioned over the weekend, is an instrument I expected to go ahead and have wide range activity. We’re starting to see that wide range activity since that video that I did for you over the weekend. We’ve already seen about 400 ticks of movement to the downside here. I suspect we’re going to be seeing a lot more movement in the very near future. It’s going to be exciting to keep on top of that instrument as we go forward here.

Bonds, I talked to you about this one too gang. We had a very specific trading strategy, same strategy we’ve implemented many times in past with key support resistance levels. Where you push through, pull back, take back off again then we’re looking for my next target. Well, we hit that target then we push back, pull back up and close above the speed lines. I told you in last night’s video once again that as far as I’m concerned it’s long side trades on this thing unless we get back down below the 136 28 level. Here we are, taking off. We’re already now half way to my next objective here, which is the 140 area. Great stuff for all of you bond traders and congratulations to all those in my student family that are enjoying this run right now.

As we look to the Euro, It’s still one that is an open opportunity. This one right here at this 1.36 level is very important to go ahead and take a look at. There’s a lot of opportunity. Just remember, as we saw today when you break down below this 136 resistance level there’s support level that we tend not to actually hold those breaks in the US session. Breaking round number supports, breaking up through round number resistance often is reversed. So as we’re going ahead and taking a look at this, we’re really looking at this play now going into the European overnight session and into tomorrow’s session with the US market. I want to open up tomorrow morning under this 136 and then look for sell side opportunities down to the 135 and below. We’ve still got some great opportunities with that one and as I said you’ll probably see me do a lot more Euro trading once we can make that happen. So that could literally be tomorrow, potentially if we don’t just bounce off here and go back up. If we do then I’m going to back off and if we’re back down in this area and making sell side trades, probably going to be doing some Euro trading as well.

Great stuff today, great trading. Looking forward to seeing you guys in the Live Trading Room tomorrow morning or in tomorrow night’s videos to recap more of this great information and how it’s playing out. Take care everyone!

Rob’s Trading Strategy For Tomorrow

Well hey gang, welcome back! As we think about tomorrow’s strategy I’ll share that with you in just a moment, I got a question today about the Bond and so I wanted to talk with you a little bit about that. Just like before, gang, remember what we’re looking for, we want to push up through resistance level, pull back to it, and then we’ll want to bounce off of it. Now remember, part of the “bounce off” process means we get to closing back above the speed lines to be entertaining long-side trades. Like here, you see the first couple of days while it held the previous resistance and was trying to make it support, it still didn’t close back above the speed lines. Not until here, where it closed back above the speed lines, where you could really even start thinking about taking the most aggressive of longs. Some people want to actually wait until we got above the distribution bar, over here, in this double momentum shift area, Some people were actually waiting all the way until her. I’m not advocating that you have to wait until 50% of the move is over, but at least go ahead and wait to make sure you get back above the speed lines. You all know by now how important those are to support and resistance.

So here we are yesterday, you’ll notice we close right at ‘em, and then we roll back over again today. If you’re looking for the bounce here, you really want to get back above those speed lines to be focusing on any sort of attempt towards the 140000 level. Now we go ahead and think about today’s strategy and then what’s going to go into tomorrow. First of all, let’s cover today’s strategy. Today’s strategy we opened the earlier, morning time-frames and the daily and the hourly charts were down, so from an institutional perspective, we knew we had some problems there. But we did find some decent long-side trading earlier this morning. It started getting a little bit messier as we came closer to the Presidential Speech and beyond, but earlier we were actually able to take long-side trading here as the Market opened up and had a nice run there into the first 90 minutes of the session. After that, we kind of backed off for the longs. We didn’t take trades long-side, especially once President Obama was speaking and thereafter. After that transition, post Presidential Speech, we focused on short-side trading. So long-side trading on the upside and short-side trading on the downside is the strategy, what we did in the Live Trading Room this morning.

Tomorrow’s Trading Strategy

As we go into tomorrow, my initial reaction, first-things-first, because the NASDAQ is back above the speed lines, the DOW is back above the speed lines, and the S&P are back above the speed lines. I see we are at the speed lines on the Russell. So, there is a huge, huge divergence taking place here. We’ve talked about this and what I’m doing is, well right now, while this Market is in a very precarious place on the daily charts. You can see we have accumulation down below us, which we keep falling into and bouncing off of. At the same time we have the resistance above us, which we keep falling away from. So now, going into tomorrow, if the other three Stock Index Futures hold where they were today and start to rally, I’m going to see if there is some gap to play in the Russell going into tomorrow’s session. Otherwise, we’ll look to see if it is going to make another big attempt, or another rollover attempt to the downside. Now you recall, we’re in an incredible, incredible time right now, where the Stock Index Futures are going ahead and pushing up fairly heartily. At the same time, we’ve got one Stock Index Future, in particular, that is at the edge of the abyss that could send this whole Market tanking. It’s an exciting time. It’s an incredible time. I find myself taking long-side trades, sort-side trades, a little bit of everything in the middle of this range, until such time as we break out of this range, either to the upside or to the downside. So watch this range, gang, it continues to be the story, so the strategy going into tomorrow with these three Stock Index Futures being so strong, I’m going to initially have to look for long-side trades just like I did this morning, I focused on the long-side trades on pull-backs into rising support. So that’ll be the key strategy. Later in the session, if we hold these speed lines here on the Russell, and the whole thing comes tumbling back down, then we’ll start looking for fresh shorts on the Russell, not on any of the other Stock Index Futures, because these ones are too far away and above key support. That could be very dangerous. So I won’t be focusing on the shorts on those, I’ll be focusing on the shorts in the Russell if the Russell starts to drive this Market back down. Otherwise, longs on any of the other four. So that’s going to be the strategy going into tomorrow morning. Remember what I said about the Bonds.

Come See Rob In Kansas

Check down below in the “Special Update” section about Kansas City. I’ve got an event out there coming up in Kansas City, I’d love to have you guys there live. That’s going to be a big event. Also, don’t forget to fill out that special form that I sent you so that you get special, individual videos from me on Stocks, Futures, Options, Forex, whether you are a part-time trader, full-time trader, swing-trader, day-trader or long term investor. So it’s going to be different types of videos coming out for people who filled out that form, we already started making those videos, so don’t miss such a great opportunity to get more specialized learning from me! Check, in your email tonight, those two little links and we’ll see you guys tomorrow. Have a great night and take care!

How Crude Oil, Gold, and the Stock Index Futures Are Shaping Up For Tomorrow

Happy Wednesday everyone! Rob here with you. As we go ahead and start off the evening let’s go ahead and take a look at a couple of different things. First of all, crude oil. So, with crude oil I already gave you a high level perspective of what I’m going to be looking at now for the coming months. Any opportunities where I see the markets showing weakness and opportunities for sell-side, I’m going to be looking for those a little bit more aggressively. We’ve already come about nineteen dollars off of the highs set back a while ago. What we have now is an opportunity for much lower lows. The articles that came out here, while fundamental in nature over time, are not going to necessarily day-to-day go ahead and be the end-all be-all. So what we’re looking at are situations where we can tie what we’re seeing from a fundamental perspective (from the weekly supply and demand reports) to what we are seeing in US oil production increasing as it is supposed to be to rival our Saudi counterparts. I showed you that article yesterday covering this.

Thoughts on Crude Oil

So first things first, today we did come approximately 50% off our high and hit the speed line resistance here on my charts at 1:24 and then came off those highs. So, here again, not as bullish as some might think on this up day initially. What I would really like to see from this is getting back down below these lows here on my charts at 1:43. That level is basically just below the $92.80 area. Once we start getting below that area I’m going to be getting a lot more excited about opportunities to the downside. Particularly, initially down to the $90 level, although that could just be the start at that point. So, what I’d like to see first of all here going into Thursday and beyond, again, I’d like to get down below that $92.80 level and have us roll back in the Fast Trigger (on my charts at 2:09) towards the direction of the core trigger for sell-side trade set-ups.

What We See For Gold Going Forward

As far as gold is concerned, it did something very similar to crude oil today. It came roughly 50% off the high after smacking into the speed lines. Not very bullish. You’ll notice the interesting part is that we closed the day right up there where that previous accumulation bar came to an end as well. You can see this on my charts at 2:36. So, a lot of trading activity in and around this key support band that was set here back a few weeks ago. What I would like to do, as you can imagine, is to get below the $12.50 area. A move down below that area could set us up for an opportunity for several hundred ticks down further. Remember, for every hundred ticks there is a thousand dollars per contract, so that can add up very quickly. We want to keep a close eye on that key support band that we are in right now between that $12.50 area and the $12.73 area.

The Stock Index Futures Were Ugly This Morning

The stock index futures started out pretty ugly this morning. In fact, you can see on my charts what it looked like this morning at 3:22. You had the daily chart caught between the speed lines. The hourly and the fifteen charts were trending to the downside whereas you had the five minute slightly up from left to right and the two minute up from left to right. So we kind of had a mixed bag of nuts. What that basically led to this morning (as of 9:30am) was us sitting there basically unchanged. So what do we want to do in a situation like that? Well, when we are sitting there basically all but unchanged, I want to go ahead and avoid those particular instruments and look at other things. Those would include gold, crude oil, currencies or other instruments that are of interest to me. Another option would be to focus on options trading, like we did this morning. Randy just went and closed out another fantastic options trade this morning. For all of you who are part of the Options Program you know what I’m talking about. For those that just joined in the last week the program is already showing you what a great decision you made to be with us.

Looking back at the stock index futures going into the afternoon, we did get a little bit of movement going to the upside. Let’s look at that. Look what happened when we went into the afternoon session on my charts at 5:00. This is the kind of thing that you are looking for. You are looking for these higher probability set-ups. This is something I’ve shown you many, many times in the past. We are looking for the Fast and Core Triggers to get into alignment. You’ll notice over and over here throughout this session, after about 11:15 this morning, we really started kicking into gear with all of those firing off in the same direction. This lead to some fantastic long-side opportunities going into the remainder of the day.

Thinking about Opportunities Tomorrow

This morning was ugly. So we sit there, avoid it and look for other opportunities elsewhere (gold, crude oil). Then, all of a sudden, we come back and it is starting to fire off all of our different systems into the same direction. Now you have something really good there. Look at my charts at 5:52 and how all the systems are firing off there. That is the kind of thing we are looking for. As we go into tomorrow and beyond we have the stock index futures nicely above the speed lines and now we’ll continue to look for fresh long-side trades into tomorrow’s session. As long as all four of the stock index futures stay above those speed lines and in particular, when we can go ahead and get this kind of alignment on my charts at 6:20 on multiple time frames. That looks way better than it did going into this morning’s open. We got it after 11:15am CT. That is where the higher probability trade is going to come from. That is what you want to wait for. That is where you go ahead and push the trades when we have that kind of higher probability environment.

I wanted spend some time on that with you. Keep this fresh and top-of mind as well as what we are looking at in crude and gold for some trades in the next couple of days as well. Hope you all have a great night and we will see you in the Live Trading Room or in tomorrow night’s video.

Become A Better Trader Review Crude Oil News And Gold Prices

Well welcome back everyone. Rob here with you, as we go ahead and look at Tuesday’s activity, a couple of things to go ahead and note. First things first, from the stock index futures perspective, stock index futures here continue to go ahead and basically kiss their speed lines most of the day today. We were either slightly above, at or at some points below our speed lines on the stock index futures. This left us with a real rough ride on an intraday basis. If you’re a retail trader getting caught up in the middle of that mess, you were not a real happy camper for a great part of this morning here.

What We Were Looking at in the Room Today

Now, our focus in the room tended to be on things such as gold prices which was looking a little bit better. Ultimately, going into the afternoon we were looking for crude oil news and both of these went ahead and had nice moves. As we go ahead and go into tomorrow, we are now basically back above the speed lines on these four stock index futures. The DAX also is in a situation where it is at its speed lines on the daily basis. So, this is very important when you’re trying to figure out a direction on the day and how we’re going to respond from a trading perspective. On my charts, you can see that the DAX is right in the middle of the stock index futures and often the stock index futures and the DAX will travel together. We’re going to be looking now into tomorrow: Do we open up with the stock index futures in the DAX below the speed lines? Then we would certainly be looking more at shorts but if we can hold the speed lines and start pushing back towards the upside then we will certainly be looking at longs.

It sounds pretty simple, and yet where most of the traders get it wrong is when they’ll see… for instance, this morning there was a rally at one point in a couple of stock index futures but I wasn’t quite confident in its follow-through because of situations just like the one you see on my charts at 2:11. What you’ll notice here is on the NASDAQ daily chart is that we may be above both the speed lines right now but you’ll notice that the fast speed line is below the slow speed line. Let’s take a look at what that looks like on my charts at 2:26. When I’m in a situation like that I am going to be very skeptical about longs. Just as if when we go ahead and have a situation where my fast speed line is above my slow speed line and I’m firing off blue and blue and blue on my indicators. By gosh, I better be thinking about long-side trades.

So we see along the way here that these markets have these little pullbacks. What happens is you get some retail traders who are constantly trying to be top-catchers or bottom-catchers to call a top. The problem is that gets some sucked in short only to watch it turn around and rip their heads off. So similar situation over here at 3:11. When I’m below the fast speed lines below the slow speed line, well now I’m going to be concerned that any sort of rally might come right back down crashing on top of people. We actually saw that earlier this morning. Do keep that in mind how that strategy works.

The Stock Index Futures and Crude Oil News for Tomorrow

Going into tomorrow morning I’m going to very clearly looking at where do all four of the stock index futures lay and we’ll take a look at what the DAX as well and see what kind of agreement or disagreement that is going ahead and giving. Two things to note here; gold prices were the key flavor of the morning session and for those of you that get my intraday video updates we put one out for crude oil news for the afternoon. So, as we take a look here at 3:55, I continue to be very bearish on gold prices and looking for shorts this morning and we will continue to do so as we go through this key accumulation and distribution area. There is still plenty of room and opportunity to go.

The real story here is the crude oil news. The thing is, I like it especially as we are down underneath the resistance you see on my charts at 4:25. If we couldn’t break back above this resistance I show at 4:28, I told people I want to be focusing on a short. The key about the short is that we have this rising trend line I point to on my charts at 4:40. That is what I mentioned for the intraday video today that was supposed to be for this afternoon trading session. So as we look at everything, it’s a situation where this market has gone ahead and broken down below that area that led to a nice sell off but there is also a fundamental thing taking place here as well. It’s great when you can combine technical and fundamentals. My work really compliments that.

One thing to keep in mind here is that we’ve had this situation now with this news announcement that the US is to become the top oil producer in 2015. So they are saying we are going to surpass Saudi Arabia and Russia for #1 oil producer. That’s fantastic from a supply and demand perspective to help potentially prices down and also on an oil independence basis there are a lot of pros to that as well from a strategic and military perspective.

Bottom line is, I’m going to be looking for short-side opportunities and seeing how true these inventory number prove to be. Does the US actually become the top oil producer? I’m going to keep an eye on that as it is going to be an ongoing story for the future. So just know that in the back of my head that whenever I find short-side trade set-ups I am going to be more aggressive on those than I will on any long-side trade setups.
Hope that you enjoyed this video and I look forward to seeing you in tomorrow’s video or in the Live Trading Room tomorrow morning.

Options Trade Sizing

In my previous post we talked about how to use stops with defined risk trades. Now one key to that strategy is appropriate trade sizing. As with any type of trade, trade sizing is key to your success. Now before I get into the aspects of trade sizing I want to touch on probabilities. Much of my options trading is based on probabilities and a key aspect of making probabilities work is to a have large enough number of traders (occurrences). This is known as the law of large numbers. To understand the law of large numbers lets take look at a coin flip. As everyone knows a coin flip has a 50-50 probability for heads and tails. Now intuitively we know that if you flip a coin 100 times you have a better chance of getting a 50-50 outcome then if you flip a coin only 10 times. The probabilities bear this out. If you flip a coin  4 times you have a 6% probability of getting 4 all heads in your flip. Now flip the coin 10 times and that number drops to .097% and flip it 100 times and the number becomes infinitesimal.  Baseball offers excellent examples of how statistics and probabilities work out. For instance a career .250 hitter can hit .350 over a short period of time but over the length of the entire season (a larger sample size) they will average closer to .250. Another good example is to look at casino’s. Casino’s  prefer large numbers of small bets versus a small number of large bets. Since they have the edge, similar to options sellers, they want to make sure the probabilities work out so they want to use the law of large numbers. That is why you see large numbers of small bet tables and machines. If you are interested in probabilities and entertaining book (if you can say that about probabilities) is The Signal and the Noise; Why So Many Predictions Fail – but Some Don’t by Nate Silver, who is a statistician and correctly predicted the last two US elections and writes the fivethirtyeight blog for the New York Times.

Now how does this relate to trade sizing? Well first, in order to have a large sample size we need to place many trades per month while not using all of our capital. We don’t want to use all our capital as we need capital available to manage and defend positions as well as have dry power for any unique opportunities that may arise.  Additionally as we move from one expiration cycle to the next we need capital available to start placing positions for the next expiration cycle while still managing positions in the current cycle. So to stay small and have the ability place lots and lots of trades I typically limit the amount of capital used for each trade to 1-3% of my available capital. Assuming a $100K account size at 1% you can have 50 positions on if you’re using using 50% of your total available capital. This also means that during an expiration cycle you could easily have 75 – 100 trades placed which will have the probabilities work for you.

Now you may be saying, “Well that’s great but I don’t have a $100K account”. Not to worry, you can still place enough trades to get the law of large numbers working for you. With a $25K account (the pattern day trading minimum) you can easily have 12-15 positions on at any one time and only use 50% of your capital. This will allow you to typically have between 20-40 trades per expiration cycle which is enough trades to have the probabilities work out.

By placing many small trades and getting the probabilities to work for us we greatly increase our overall success as a trader. Now with this type of trading you are not going to hit many home runs and we are never going to risk a large portion of our account in a trade to try to strike it rich. Instead we are going to consistently make steady profits and grow our account over time. Keep in mind that if you earn only 8% per month on your account that equates to approximately 100% on an annual basis, not too bad. And to make the 8% on your account you only need to earn 16% on the 50% you use as capital, a very reasonable figure. This requires us to change our mindset from thinking about how much we can make in any single trade (get rich quick) to focus on managing our return on capital for each trade (how professionals trade). To use another baseball example we don’t want to the guy that hits 40 home runs but bats .180 and strikes out 300 times.  We want to be the person that hits .400 and leads the league in total bases.

Professional Handling Of Contract Rollover

This is an important article, because it’s something that I guess, in my old years, I tend to take for granted, but it’s amazing. This is something that I saw recently with contract rollover and I wanted to share it for your benefit. Basically, what I saw was several new student family members that are new to my methodologies, but not new to trading, asking the question when and how to rollover. They say,“Rob, you’re in the December contract, you’re supposed to be in the March contract.” So it was a great topical piece first thing this morning.

What I want to do right off the bat is just explain something important to you. I understand that your charting packages often will automatically roll you over to the new front month. Your brokers will also send you emails encouraging you or telling you to go ahead and move over into the new front month. But I will tell you, volume and liquidity are key survival tools and mechanisms and needs that we have as traders. So one of the things that I do with my trading is I always make sure that there’s more volume pushing into the new front month than the old one.

So, for instance, what you will see in the video above is a snapshot of the SNP futures. And you will see  it’s about 1:42 central time, so 2:42 eastern time when the snapshot was taken, so there was still got some time left in the market on that day. But this is a day that we were supposed to rollover, first thing this morning. That’s what our brokers tell us to do, that’s what they encourage us to do. Our charting packages have already rolled over, front month to the March contract. So everything we receive as traders says to us “Hey , we should be in the March contract.” I will tell you right now that the way that I handle this from a professional perspective and that tends to make the most sense for most people is to throw up a volume chart of the prior month and the new month.

So, in this case, watch the video above and see that I have the SNP December contract, and then I have the SNP March of 2013 contract What I do, is that I take a 5-minute chart and I compare these two 5-minute charts with each other.  If you want to do this,  all you have to do is put your little cursor on the front time, and see what they’re doing. What you’ll notice in the example above is that –we had 16,500 contracts being traded in the December contract with only 6,500 contracts approximately in the March contracts. So just shy of a 3:1 ratio. There was more volume still in the December contract.

Now, in this example, with an hour and 15 minutes in the cash session still to go, we’re seeing about 5,100 contracts being traded in the SNP December, and 2,600 now being traded in the March contracts. So we still have even a 2:1 ratio. Now of course, what you want to do is you want to wait till this bar closes, just to verify this, to see exactly where they settle out each bar. Because what you’ll see is some more volume sometimes creeps into the front month still, the prior month, the December contract in this case. Wait till the bar closes, and then do the reading.

Once the volume in the March contract starts showing those 5-minute bars locking in more volume in that new front month, in March of 2013 in the case of the example in the video above, that’s when I’m going to go ahead and make the switch.

So this is how I handle every single rollover. This is how I manage  the gold, the crude oil. I’ll do the currencies the exact same way. It’s very important: this way, what I’m doing is I’m keeping as much liquidity in my favor as possible. And, of course, that’s very important for someone like myself who trades big contract size, but it’s also important even if you’re a one or two contract trader because obviously you’re more prone to slippage and whipsaws back and forth in a lower-volume environment.

This is a very important topic. It happens, , depending on the instruments you trade, once a month, once every other month, once every quarter. So it happens frequently, and  it’s something you need to be aware of. For all traders, I hope you enjoyed this update and get a live snapshot here of how I actually control the rollover process.