Hey Traders,

“Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it.”

I pulled this quote directly from the opening paragraphs of the free Elliott Wave Online Tutorial. It’s critical to your understanding of how markets really work.

Now some might say, “What’s wrong with following the crowd? I’m just following the easy money, right?” The problem with this logic is that most investors follow the crowd (or herd) all the way up the mountain … then right off the cliff.

Look at today’s situation: How many people you know got out of the stock market before the October 2007 top? Heck, how many you know cut losses and cashed out even six months after the top?

If you’re like most people, your answer ranges from “zero” to “very few.”

Being a successful investor over the long-term means you must always strive to be part of that “very few.”

Famed market analyst Robert Prechter, the leading practitioner of the Elliott wave method of market analysis, once said, “Missing a market move may be a shame, but getting caught on the wrong side of one means you lose money. People who have gone through the experience know there’s a big difference.”

To be a successful individual investor, you must understand what it means to take risks when the probabilities are behind you and shun risk when they’re not. Robert Prechter’s method of analysis, the Elliott Wave Principle, is designed to help him and his subscribers do just that.

Buy and hold is dead. Trading isn’t any easier. Having a big-picture outlook doesn’t mean you must “set it and forget it,” as the late-night infomercial guy says. And it certainly doesn’t mean you must be in and out of the markets every day. It simply means you can see the forest for the trees.

You can go long when the markets are behind you, short if you have the guts, and stay out completely when the risk is too high. Simply put, adopting an independent, unbiased method is the very best way to ensure you don’t get caught up in the investment herd.

Elliott wave analysis is not for everyone. It’s highly technical. And it presents probabilities, not certainties (there’s no such thing as a black box trading system). The most successful investors and analysts – the guys who are still around after 30 years like Prechter – are able to assign probabilities and assess risk; and they act only when probabilities are high and risk is not.

I encourage you to learn more about the method that has kept Robert Prechter out of the herd and in the game for more than three decades. His company, Elliott Wave International, has an extremely useful Elliott Wave Tutorial for free online. It’s broken up into 10 lessons across 50 pages, so it’s easy to read and review at your leisure.

Check it out at the link below, give yourself some time to digest it, and decide for yourself if Elliott is a method you should add to your investment arsenal.

Separate your investments from the herd; get started with the free Elliott Wave Tutorial today.

Cheers

Vlad

Hey Traders,

What if you could look at a chart and instead of seeing what happened, you could see the potential trading opportunities that could happen.

Elliott Wave International (EWI), the world’s largest market forecasting firm, has just released a free eBook to teach you exactly that.

The How to Spot Trading Opportunities eBook features 47-pages of easy-to-understand trading techniques that help you identify high-confidence trade setups. Senior EWI Analyst Jeffrey Kennedy will show you how some of the simplest rules and guidelines have some of the most powerful applications for trading.

Created from the $129 two-volume set of the same name, this valuable eBook is offered free until September 23, 2009

Don’t miss out on this rare opportunity to change the way you trade forever.

Go here to download it now.

By Bob Prechter

The following is an excerpt from Robert Prechter’s Elliott Wave Theorist.  Elliott Wave International is currently offering Bob’s recent Elliott Wave Theorist, free.

On February 23, EWT called for the S&P to bottom in the 600s and then begin a sharp rally, the biggest since the 2007 high. The S&P bottomed at 667 on March 6. Then the stock market and commodities went almost straight up for three months as the dollar fell.

On March 18, Treasury bonds had their biggest up day ever, thanks to the Fed’s initiating its T-bond buying program. The next day, EWT reiterated our bearish stance on Treasury bonds. T-bond futures declined relentlessly from the previous day’s high at 130-15 to a low of 111-21 on June 11.

That’s when there were indications of impending trend changes. The June 11 issue called for interim tops in stocks, metals and oil and a temporary bottom in the dollar. The Dow topped that day and fell nearly 800 points; silver reversed and fell from $16 to $12.45; gold slid about $90; and oil, which had just doubled, reversed and fell from $73.38 to $58.32. The dollar simultaneously rallied and traced out a triangle for wave 4. Bonds bounced as well. As far as I can tell, our scenarios at all degrees are all on track.

Corrective patterns can be complex, so we should hesitate to be too specific about the shape this bear market rally will take. But from lows on July 8 (intraday) and 10 (close), the stock market may have begun the second phase of advance that will fulfill our ideal scenario for a three-wave (up-down-up) rally. In concert with rising stocks, bonds have started another declining wave, and the dollar appears to have turned down in wave 5 (see chart in the June issue), heading toward its final low. Although commodities should bounce, their wave patterns suggest that many key commodities will fail to make new highs this year in this second and final phase of partial recovery in the overall financial markets.

Meanwhile, our forecast for a change in people’s attitudes to a less pessimistic outlook is proceeding apace. Here are some of the reports evidencing this change:

More than 90 percent of economists predict the recession will end this year. [The] vast majority pick 3rd quarter as the time. (AP, 5/27)
Manufacturing and housing reports this week may offer signs that the recession-stricken U.S. economy is within months of hitting bottom, economists said. (USA, 6/15)

Fewer people say they’ve prospered over the past year than in decades, a USA TODAY/Gallup Poll finds. Over the past two months, however, expectations for the future have brightened significantly amid rising optimism about a stock market rebound and economic turnaround. “I think the administration is going in the right direction,” says… Now 36% of those surveyed in the Gallup-Healthways well-being poll say the economy is getting better. That’s not exactly head-over-heels exuberance, but it is double the number who felt that way at the beginning of the year and a notable spike in the nation’s frame of mind. Thirty-three percent say they’re satisfied with the way things are going in the United States; in January, just 13% did. (USA, 6/23/09)

If only to confirm the socionomic causality at work, an economist quoted in the article above muses, “The one anomaly in the puzzle is that people shouldn’t be feeling better because the jobs market is so terrible and unemployment is likely to keep rising.” Of course it would be an anomaly, and people should not feel better, if mood were exogenously caused. But it is endogenously regulated, and it precedes social actions, which produce events such as job creation and elimination. That people feel better is evident in our rising sociometer, the stock market. If the rally continues, economists will soon agree that the Fed’s “quantitative easing” and Congress’ massive spending are “working.” Those predicting more inflation and hyperinflation will have the last seeming confirmation of their opinions. Then, a few months from now, some economists will probably express similar puzzlement when the stock market starts plummeting again despite the fact that the economy has improved.

But all of these considerations are temporary. Conditions are relative, and behind the scenes, the depression has been, and still is, grinding away.

For more information, download the FREE 10-page issue of Bob Prechter’s recent Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You’ll find out why the worst is NOT over and what you can do to safeguard your financial future.

Hey Traders,

Here is a quick update of bullish sentiment and NYSE stocks above 200ma. Both of those indicators are at the very least at 3 years highs:

While I will continue to focus on technical levels described in previous updates, I would rather miss the next move up, whatever it might be than chase the tape at this level, unless for intraday scalp

Cheers

Vlad

NEW YORK (Reuters) - A federal judge refused to approve a proposed settlement between the U.S. Securities and Exchange Commission and Bank of America Corp over the payment of bonuses to Merrill Lynch & Co employees, saying he was unable to determine if it was fair to the public.

The largest U.S. bank had agreed on August 3 to pay $33 million to resolve an SEC civil lawsuit accusing it of misleading shareholders by not disclosing it had authorized the payment of up to $5.8 billion of bonuses to Merrill employees. About $3.6 billion was awarded.

But at a hearing on Monday, Judge Jed Rakoff of the federal court in Manhattan said he needed a “much more detailed account of the underlying facts” before signing off. He suggested the settlement might not be “remotely reasonable” if the SEC were right that the bank lied about the bonuses.

“I would be less than candid if I didn’t express my continued misgivings about this settlement at this stage,” Rakoff said. He said the settlement “seems to be lacking in transparency.”

Continue reading full article here: Reuters

Look at this, first they actually cut ridiculous jet spending in half (hopefully in full soon), and now 33Million tip for 6 billion bonuses is not sufficient, good to see.

Of Course it would be more convenient to fly to Europe for summer vacation on private jets, so lets just spend $550M of tax dollars on some private jets, there should be plenty for sale now after we made all the CEOs get rid of theirs:

The Pentagon is criticizing the House of Representative’s request to upgrade Congress’ air fleet — and charge the cost to the Defense Department.

“It forces us to take money from things we do need to fund and redirect it for things we don’t need,” Geoff Morrell, a spokesman for Defense Secretary Robert Gates, told the Wall Street Journal. “And in a time of war, we just can’t afford that. The bottom line is, for everything that they appropriate for us above and beyond what we’ve asked for, it will, at some point require us to find money from programs we do need.”

Lawmakers slipped the request into the Pentagon’s proposed budget for 2010, insisting that Congress’ current fleet of executive jets is old and more expensive to operate that newer, more efficient planes. They also say lawmakers use the jets only 14.5 percent of the time, compared to 44 percent usage by military members.

President Barack Obama sent Congress a Pentagon budget of $640.1 billion, which the House adjusted and scaled back to $636.3 billion. During that process, members requested $550 million to purchase eight passenger jets. Obama originally sought only $220 million to buy four planes.

Source: http://www.newsmax.com/insidecover/pentagon_jets_defense/2009/08/08/245565.html

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By Jeffrey Kennedy

The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. Now through August 17, Elliott Wave International is offering a special 45-page Best Of Trader’s Classroom eBook, free.

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I think that, as a general rule, traders fail 95% of the time, regardless of age, race, gender or nationality. The task at hand could be as simple as learning to ride a bike for the first time or as complex as mapping the human genome. Ultimate success in any enterprise requires that we accept failure along the way as a constant companion in our everyday lives.

I didn’t just pull this 95% figure from thin air either. I borrowed it from the work of the late, great Dr. W. Edward Deming, who is the father of Total Quality Management, commonly known as TQM. His story is quite interesting, and it actually has a lot to do with how to trade well.

Dr. Deming graduated with degrees in electrical engineering, mathematics and mathematical physics. Then, he began working with Walter A. Shewhart at Bell Telephone Laboratories, where he began applying statistical methods to industrial production and management. The result of his early work with Shewhart resulted in a seminal book, Statistical Method from the Viewpoint of Quality Control.

Since American industry spurned many of his ideas, Deming went to Japan shortly after World War II to help with early planning for the 1951 Japanese Census. Impressed by Deming’s expertise and his involvement in Japanese society, the Japanese Union of Scientists and Engineers invited him to play a key role in Japan’s reconstruction efforts. Deming’s work is largely responsible for why so many high quality consumer products come from Japan even to this day.

In turn, Japanese society holds Dr. W. Edward Deming in the highest regard. The Prime Minister of Japan recognized him on behalf of Emperor Hirohito in 1960. Even more telling, Deming’s portrait hangs in the lobby at Toyota headquarters to this day, and it’s actually larger than the picture of Toyota’s founder.

So why do people fail? According to Deming, it’s not because people don’t try hard enough or don’t want to succeed. People fail because they use inadequate systems. In other words, when traders fail, it’s primarily because they follow faulty trading systems – or that they follow no system at all.

So what is the right system to follow as a trader? To answer this question, I offer you what the trader who broke the all-time real-money profit record in the 1984 United States Trading Championship offered me. He told me that a successful trader needs five essentials:

1. A Method
You must have a method that is objectively definable. This method should be thought out to the extent that if someone asks how you make decisions to trade, you can quickly and easily explain. Possibly even more important, if the same question is asked again in six months, your answer will be the same. This is not to say that the method cannot be altered or improved; it must, however, be developed as a totality before implementing it.

2. The Discipline to Follow Your Method
‘Discipline to follow the method’ is so widely understood by true professionals that among them it almost sounds like a cliché. Nevertheless, it is such an important cliché that it cannot be ignored. Without discipline, you really have no method in the first place. And this is precisely why many consistently successful traders have military experience – the epitome of discipline.

3. Experience
It takes experience to succeed. Now, some people advocate “paper trading” as a learning tool. Paper trading is useful for testing methodologies, but it has no real value in learning about trading. In fact, it can be detrimental, because it imbues the novice with a false sense of security. “Knowing” that he has successfully paper-traded during the past six months, he believes that the next six months trading with real money will be no different. In fact, nothing could be farther from the truth. Why? Because the markets are not merely an intellectual exercise, they are an emotional one as well. Think about it, just because you are mechanically inclined and like to drive fast doesn’t mean you have the necessary skills to win the Daytona 500.

4. The Mental Fortitude to Accept that Losses Are Part of the Game
The biggest obstacle to successful trading is failing to recognize that losses are part of the game, and, further, that they must be accommodated. The perfect trading system that allows for only gains does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Trading is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! Remember, you don’t have to be perfect to win in the markets. Practically speaking, this is why you also need an objective money management system.

5. The Mental Fortitude to Accept Huge Gains
To win the game, make sure that you understand why you’re in it. The big moves in markets come only once or twice a year. Those are the ones that will pay you for all the work, fear, sweat and aggravation of the previous 11 months or even 11 years. Don’t miss them for reasons other than those required by your objectively defined method. Don’t let yourself unconsciously define your normal range of profit and loss. If you do, when the big trade finally comes along, you will lack the self-esteem to take all it promises. By doing so, you abandon both method and discipline.

So who was the all-time real-money profit record holder who turned in a 444.4% return in a four-month period in 1984? Answer: Robert Prechter … and throughout the contest he stuck to his preferred method of analysis, the Wave Principle.

For more trading lessons from Jeffrey Kennedy, visit Elliott Wave International to download the Best of Trader’s Classroom eBook. Normally priced at $59, it’s free until August 17.

July 23, 2009

By Jeffrey Kennedy

The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. Now through August 10, Elliott Wave International is offering a special 45-page Best Of Trader’s Classroom eBook, free.

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Aspiring traders typically go through three phases in this order:

Methodology. The first phase is that all-too-familiar quest for the Holy Grail – a trading system that never fails. After spending thousands of dollars on books, seminars and trading systems, the aspiring trader eventually realizes that no such system exists.

Money Management. So, after getting frustrated with wasting time and money, the up-and-coming trader begins to understand the need for money management, risking only a small percentage of a portfolio on a given trade versus too large a bet.

Psychology. The third phase is realizing how important psychology is – not only personal psychology but also the psychology of crowds.

But it would be better to go through these phases in the opposite direction. I actually read of this idea in a magazine a few months ago but, for the life of me, can’t find the article. Even so, with a measly 15 years of experience under my belt and an expensive Ph.D. from S.H.K. University (i.e., School of Hard Knocks), I wholeheartedly agree. Aspiring traders should begin their journey at phase three and work backward.

I believe the first step in becoming a consistently successful trader is to understand how psychology plays out in your own make-up and in the way the crowd reacts to changes in the markets. The reason for this is that a trader must realize that once he or she makes a trade, logic no longer applies. This is because the emotions of fear and greed take precedence – fear of losing money and greed for more money.

Once the aspiring trader understands this psychology, it’s easier to understand why it’s important to have a defined investment methodology and, more importantly, the discipline to follow it. New traders must realize that once they join a crowd, they lose their individuality. Worse yet, crowd psychology impairs their judgment, because crowds are wrong more often than not, typically selling at market bottoms and buying at market tops.

Moving onto phase two, after the aspiring trader understands a bit of psychology, he or she can focus on money management. Money management is an important subject and deserves much more than just a few sentences. Even so, there are two issues that I believe are critical to grasp: (1) risk in terms of individual trades and (2) risk as a percentage of account size.

When sizing up a trading opportunity, the rule-of-thumb I go by is 3:1. That is, if my risk on a given trading opportunity is $500, then the profit objective for that trade should equal $1,500, or more. With regard to risk as a percentage of account size, I’m more than comfortable utilizing the same guidelines that many professional money managers use – 1%-3% of the account per position. If your trading account is $100,000, then you should risk no more than $3,000 on a single position. Following this guideline not only helps to contain losses if one’s trade decision is incorrect, but it also insures longevity. It’s one thing to have a winning quarter; the real trick is to have a winning quarter next year and the year after.

When aspiring traders grasp the importance of psychology and money management, they should then move to phase three – determining their methodology, a defined and unwavering way of examining price action. I principally use the Wave Principle as my methodology. However, wave analysis certainly isn’t the only way to view price action. One can choose candlestick charts, Dow Theory, cycles, etc. My best advice in this realm is that whatever you choose to use, it should be simple. In fact, it should be simple enough to put on the back of a business card, because, like an appliance, the fewer parts it has, the less likely it is to break down.

For more trading lessons from Jeffrey Kennedy, visit Elliott Wave International to download the Best of Trader’s Classroom eBook. It’s free until August 10.

Hey Traders,

Sometimes I wonder how my pals over at Elliott Wave International ever make any money — they give so much valuable trading education away for free.
I was surprised to receive an email the other day that told me they’ve compiled 14 of the very best lessons from their Trader’s Classroom Collection of eBooks (retails for $189) and put them in one incredibly valuable 45-page report. What’s more — they’re letting people download these lessons for free.
Some of the most interesting chapters include:

• Why Emotional Discipline is Key to Success
• When to Place a Trade
• How to Use Bar Patterns To Spot Trade Setups
• How To Calculate Fibonacci Projections
• The Best Place for High-Opportunity Trade Setups

You’ll find several more fascinating lessons — 14 in all — at the link below.

I highly recommend you give this free report a look – this opportunity is only available until August 10. I suggest you jump at this chance to put these essential trading lessons in your library while they’re free.

Go here to download them now

Cheers

Vlad

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways”

Bloomberg: Goldman Trading-Code Investment Put at Risk by Theft

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Dow went up 18 of 21 days on first Day of July, including being up over 130 points at one point on July 1st this year.

Good enough probability to add this to my calendar.