Noel Campbell

This week I’m returning to talk about my favourite market of them all, the SPI200. But before getting too far, it is my last chance in 2005 to highlight the amazing run on Sugar.

Check out the article in Trading Tutors Newsletter #134 and then visit the latest weekly chart for Sugar (SB -SpotV ). This trade was the Safety in the Market futures trading example of the week during our inaugural round of Trading Tactics Seminars in the U.S.

The big move in Sugar is far from complete, but the contract is going to become increasingly volatile.

Now back to the SPI. Gann believed that the power of numbers holds the key to all future turning points in the market. Calculations derived from past turning points are the key to determining future turning point levels. The ability to use dates and prices in the past to forecast market turns in the future is one of the main fascinations of the methodology for Gann students.

I have been putting together a forecast on the SPI200 for 2006. Over the course of three Gann Mastery Seminars during the last two months this forecast has been continuously refined and adjusted. I have now arrived at a single date and price. To remain fair to the Gann Mastery traders, sharing the full details of the call is out of the question. However, providing some insight into the prices and the harmony of the numbers is a great way for me to finish off my contribution to the Trading Tutors Newsletter in 2005.

Chart 1 Monthly SPI200 (AAI-SpotV)

click chart for more detail

Chart 1 shows the monthly bar chart of the SPI200 from the birth of the contract in early 1983 to the present. Some of the major turning points and ranges have been labeled. The exact process of determining the forecast price is beyond the scope of any single article! However, the harmony in the numbers that I am now looking at is undeniable. Let’s cut to it, I’m looking for a top in the market at the end of the first quarter 2006 at around the 5040 level.

Consider the following:

• Studying the chart you can see where I have labeled the all-time low of 458. 11 multiples of 458 equal 5038

• Next I have labeled the January 1991 low (1184) and the February 1994 (2368) (Note that the range from bottom to top is 1184 or exactly twice the value of the low!)

• Adding 2368 to the bear market low of March 2003 (2679) we get a price target of 5047

• It is also worth noting that the bear range from the June 2001 high (3473) to the September 2001 low (2882) is a range of 591, which is just one point off being half of 1184 (the January 1991 low)

• I have also labeled the top in February 1997 (2520) (one of David’s favourites). 2 multiples of 2520 equals 5040

• 5040 is also 30 multiples of 168, 35 multiples of 144 and the square of 71

As you can see, there is some major harmony around this 5040 number!

Currently the market has pulled up at a double top with the previous all-time high of 4700 (late in September). Once the market can break through the recent tops and has satisfied the appropriate close filter, it will be ‘all systems go’ for 5040. On the downside, the 50% pressure point for the double tops is a critical testing level for support (or lack thereof). The benefit of putting all of this detailed analysis out in advance is that those who are still at the ‘hindsight stage’ can now proceed with foresight. Here is a chance to watch a market call unfold, chalking up valuable knowledge for the future. Time will reveal all. I wish all Trading Tutors readers a safe and happy Christmas, and prosperous 2006.

Until next year......

Noel Campbell

Darryl Nagel

In this article I provide a further example of trading with a share CFD.

This discussion will focus on a losing trade. You are encouraged to contrast this with my article in Trading Tutors Newsletter #136 which explored a profitable CFD trade. Losses are a natural part of trading. By studying a losing trade you can gain the invaluable experience of taking a loss with minimum expense.

It is important to emphasise that CFDs are highly leveraged, and when trading CFDs you must be highly disciplined in applying stops.

Chart of Fosters (FGL)

click chart for more detail

The first step is to identify the maximum amount you wish to risk on a share CFD trade. In the above example I have chosen to risk $50 on the trade, excluding commission and financing costs.

The next step is to ascertain the risk per share. In this example I set my entry limit at the 25% level which is $5.46 (by rounding down to the nearest whole cent). My stop loss will be placed at $5.37. The risk per share of $0.09 is ascertained by deducting the stop loss of $5.37 from the entry limit of $5.46.

The number of FGL share CFDs to buy is derived by dividing the trade risk of $50 by the risk per share of $0.09, being 555 FGL share CFDs.

The entry point for this trade was $5.44. We entered the trade at $5.44 on 3 August 2005 being the next trading day after the C bar.

The stop loss triggered the sale at $5.37 on 4 August 2005.

The gross loss on this trade is $38.85 ($0.07 x 555).

The net loss of $59.41 is made up as follows:

The best way to become a proficient trader is to trade with discipline using your trading plan and by trading on a regular basis to experience the emotions of taking profits and taking losses.

In the above example we established the maximum amount of capital we were willing to risk at $50.00. Then, even though this trade turned against us, disciplined trading kept our loss to a minimum.

In highly leveraged products such as CFDs, where even small losses can rapidly magnify, effective loss-control mechanisms are always an essential part of any trading plan.

It is natural to talk only of our profitable trades but I thought it worthwhile to at least look at the mechanics of a loss.

Happy trading and have a happy Christmas

Darryl Nagel

Sinan Koray

At any given moment of your existence you are operating in one of the three modes and fulfilling one of the three needs: Physical, Intellectual or Emotional. When you are tired and decide to take a nap, you are operating out of the physical mode. When you are solving a problem, intrigued by the process, you are operating out of the intellectual mode. When you develop an intense like or dislike for a person, you are operating out of the emotional mode. When a baby cries, he or she is either hungry, or has gas (physical), or feels hot or cold (physical) or needs the company of his/her mother, father or both (emotional).

At any point in time, one mode dominates your behaviour. It is important for you to recognise which mode you are operating from and to understand exactly which need you are attempting to fulfill when you are faced with a decision (trading or otherwise). When couples have an argument, often one party is very emotional and the other is explaining his/her reasons for their behaviour. It takes a long time for this kind of dialogue to come to a resolution (if at all). Why? Because they are operating out of different modes.

Another example is substance abuse: cigarettes, alcohol or drugs. The addict has heard and knows all the reasons to quit (intellectual), but they have a dependency (physical) and they need the high (emotional) the substance provides. Once again, resolution is difficult because they are operating out of different modes.

Human needs and modes

click chart for more detail

As you can see from the diagram, the emotional mode, or emotional needs, is the largest and the most important of the three modes. This is because emotions and feelings have had a head start in life. From the day we are born to the present, we experience feelings and emotions. On the other hand, logic and intellect only slowly and gradually kick in, ordinarily becoming fully operational by the age of eleven. The physical mode is the least important as our physical needs (food, shelter, warmth, comfort and rest) are easily taken care of in our modern society and environment. The next time you are grabbing that extra slice of cake, ask yourself: “What mode am I operating from?”

This question is equally important for a trader. If you are craving excitement, riddled with fear, hoping the trade will recover, impatient because the profits are showing up quickly, angry at the software, market or advisor, then obviously you are trading out of the emotional mode. In other words you are using trading to have your emotional needs met.

If you are wanting to prove how smart you are (to a fellow trader, an authority figure or the whole world), intrigued by the price movements, wanting to solve the mystery of the market, then you are trading out of the intellectual mode. If you are trading because you are hungry then it is obvious that you want your physical needs met.

Please note sipping cocktails on a Pacific island is not classified as a physical need. I will let you work out which one of the other two groups it falls into.

None of the three modes or needs are inherently good or bad. You need to be aware of which mode you are operating out of as you make trading decisions. Being aware of this can improve your trading performance. Ideally you want to have some choice in the matter. If your emotions are stirred up as you trade and you are not happy with your results, it is time to change. On the other hand, if your results speak for themselves, please sit back and enjoy.

As we bring another year to a close, from time to time you may want to reflect on your mode of operation and introduce some corrective action if you want to get better at what you do.

This article was inspired by Toby Green’s “How to snap out of it”.

Believe, Achieve

Sinan Koray