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In this news letter:

Peter at ATAA

A traders email

Market review

Welcome to this news letter

At late notice I have accepted an offer to present at Newcastle ATAA on the 9^th November.

In May 2012 I presented a trading system to the Newcastle ATAA which I will review at the presentation on the 9^th.  In the first half of the presentation I will review the results of that method…..from a different angle! The  will focus will be not just on results, but the psychological aspects of weekly trend trading. Bringing in to the mix my experience of meditation and Buddhist/Zen philosophy and how it has helped my trading.

After lunch in the second half I will again disclose the rules to the method taught in May 2012, examine in detail some of the trades, answer questions, and discuss my thoughts on the market in general.

Trading the ASX 300 with the system since May 2012

As often happens before I do a newsletter or seminar some clients seeem to have perfect timing and present questions about the market and their trading. Below is an email discussion I had with a client recently, it reflects very much what some of  the content will be at the ATAA talk at Newcastle on the 9^th Nov.

Trading Client:

Psychology is probably the single biggest determinant for me. As mentioned via telephone discussion I am increasingly looking toward a longer term ( weekly) system. My biggest lesson over the last 2 years has been my tendency to want to control which manifests as watching the screen. In my daily Forex system this has been alleviated by strong rules for entry and exit, thereby the emotion is mostly removed and analysis is only made at daily market opening.

Peters Answer:

Psychology is definitely the biggest hurdle for weekly trend traders, that includes all traders of any time frame. It was that realization, along with my own struggle to trade that led me to develop my systems to trade profitably and then start the teaching business. I felt that there were too many people teaching methods that were not grounded in good probability, along with a psychological consideration of that particular method being taught. There was also little consideration of most people’s capability and time available. Most people cannot trade consistently for a length of time using most of the methods that are out there, so they drop out of the market, you must stay in the game to win.
The need to let go of control is the key to all trading. We are raised in a world of expectation and control, the trader that realizes profitable trading requires a "letting go" and trust of the method along with a trust of him/herself has an "aha" moment. Almost like an enlightening.

Trading Client:

My other psychological barriers are draw downs and extended periods of doing nothing ( ie sitting in cash) although the negative experiences have been sobering lessons.

Peters Answer:

Extended periods of doing nothing is part of the game. The ZEN saying "when it is not necessary to do anything , it is necessary to do nothing" may help you understand. Doing nothing, waiting patiently, sitting on a slow moving position IS doing something. Those times in trading are as important as buying, position sizing, selling. It is your THINKING that is saying you are doing nothing. Again because we are raised to believe we always have to be pro active and in control.

The next modules show you are variety of systems on a number of indexes. (This trader is studying some of my teaching modules) I do bombard you a bit with information. The idea is that you determine for your self how much drawdown you can handle, trades a year you feel you can do, numbers of losers in a row you can tolerate. Those numbers depend on the speed of the exit you choose, your risk per trade you choose, if to employ the bull and bear filters and what group of stocks you trade (fast, slow, large, mid or small cap)
I encourage you then to start trading (or if you like paper trade but going live is better) with an amount of money that will not stress you. This amount is normally a lot less than what most people think...particularly men! Show yourself you can execute the buys, position size and exit with discipline. Van Tharp encourages a 90% disciplined execution rate, I agree.

Trading Client:

I have been doing yoga for the last 8 months and this has been very beneficial from a physical and mental perspective.

Peters Answer:

Thats terrific, whats really good about eastern philosophies and spiritual traditions, including all the Martial Arts, is a teaching of being in flow with what is happening in the moment. Learning to realise our minds continually tell us how things "should" be rather than acknowledging how they are. Thats why two traders can look at a chart and see 2 different things, one is seeing how it is and the other how they wish it to be.
One of my first Buddhist teachers said to me " ask not WHY it is happening but WHAT is happening."  From a trading perspective responding to what is happening is much more productive than emotionally reacting or wishing things to be other than what they are.

 Market Breadth

A few months ago I talked about market breadth, that the market had been driven by  sectors like health, staples, tech and finance.  What would make this market really motor towards the old highs in 2007 would be action in more sectors, like the emerging companies, materials and resources. That would be a sign the market had even more breadth.

Looking at the charts below of the Emerging Companies, the Materials and the Resources Index you can see they are all poking their heads above the monthly 10EMA. (which equates to a 200 daily) They are all still in a downtrend since 2011 buts its heartening to see them rebounding somewhat.

It remains to be seen if the rally in these sectors can be maintained.

However: looking at the Monthly chart of the XAO and using a percentage line above the 10Monthly EMA you can see it is getting rather extended and into overbought territory. Probability would suggest a pull back or at least a slowing of momentum is coming. If you are rushing in to buying and stressing that you are missing out…than don’t. There are always opportunities in the market, best to get your method and your emotions clear before diving in to a greed based rally.

the US SP500 uptrend on the Monthly charts seems relentless, however the weeklys and dailys below are looking over extended.

In keeping with the knowledge that our market follows the US, it may be a time very soon to practice some of the psychological advice given above in the earlier part of this news letter!

That’s it this time from me, short and sweet. I am still catching up with clients after being away and preparing for Newcastle ATAA as well as doing some web site work. Thank you to all those people that emailed me and wished me happy holidays, and a welcome home,  much appreciated.

Cheers

Peter

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