Get your orders in. We're on our way up to $13,500 by the end November 2020.
Friday, October 9, 2020
Thursday, September 3, 2020
“It's only when the tide goes out that you learn who's been swimming naked.” -Warren Buffett
If you follow any market for an extended period of time you will notice certain patterns in price action. In particular, you will notice that the market moves in waves. It is pushed in certain directions by large buyers and sellers in the markets. These large buyers and sellers have the ability to change the direction of the wave pattern. And, when they all align you get a tsunami. Just like the guy trying to find that monster wave, traders are on the look out for the same phenomena.
At what point do you know the wave is about to "break"? This is the million dollar question, because in surfing and trading, timing is everything.
One of my favorite tools to use in trading are trend-lines. Trend-lines help you to see where the "break" is.
Trend-lines are used to find the trend, but they also tell you when the trend has changed direction. That is, when another large buyer or seller has entered the market and changed the direction of the prevailing trend. If the dominant trend is up and a major player comes in and starts selling, it will push the trend in another direction. This push causes a "break" in the trend. In the world of trading this is referred to as a breakout.
Let's take a moment to familiarize ourselves with the following chart. This is my own chart setup on Ninjatrader 7. We're looking at a price chart of NASDAQ futures (my favorite instrument to trade).
For now, disregard the bottom half of the chart and just focus on the top segment. Also disregard the green, yellow and orange lines -- we'll talk about what those mean later. For now, just focus on the candlesticks and the blue lines. The blue lines are trend-lines.
At first, you will notice blue lines following the trend up and then the trend changes and starts going down.
Now let's get laser focused on the first trend-line going up.
As you can see, the price bounces off the bottom of the trendline three times before finally gaining enough traction to continue upward. It doesn't quite reach the top of the trend-line before it starts trending down. This is when you start looking for a breakout.
The trendline supported the price three times before, and now
it's breaking through the trend line. This breach is the
breakout. Once you see the breakout, it's time to act. As you can see there are two breakouts. The first one is a breakout down and the second is a breakout up.
Both breakouts represent an opportunity to "ride the wave". The trend is up, another wave comes in and starts selling and changes the wave pattern down. The push is so strong that it forces the trend to change direction and that change in direction is marked by a breakout.
In trading, there is no sure thing. The best thing you can do is find an indicator that works 75% of the time. One way to boost your accuracy is by confirming the direction of the breakout with another indicator. Now we can look at the bottom part of the chart. The breakout down is confirmed with a down movement by both of the bottom indicators. The second breakout is also confirmed by an up movement by both of the bottom indicators.
Now what? Once you find the breakout you want to place a trade with a take profit (TP) that's at least 2x as much as your stop loss (SL). For example, once I see the first breakout I'm going to place a trade with a SL of 40 ticks and a TP at 80 ticks. Some traders like to go for 3x or 4x. That depends on your risk. When you're first starting out, I think it's safe to go for 2x. This way, if you get one trade wrong and one trade right, you're still up.
This is by far my favorite set up. If you have any questions, post them in the comments below or email me at celanbryant @ gmail.com.
Wednesday, September 2, 2020
- At a time when when the major tenants of investment valuation have been undermined, investors are looking for a confirmation -- a confirmation that the fundamentals aren't lying.
- Technical analysts study price trends. We look for patterns that play out regardless of the asset being traded.
- Campbell Soup has been trending up for the past 2 years, but the trend is reversing in the short-term.
- Long-term play: Buy the pullback. Both the trend-line and the moving average converge around $49.15, which is the best place to put your buy order.
- Short-term play: You can sell now with a take profit at $49.15. Or, you can buy at $49.15 and take profit at $55 even.
From Edo-period Japan, where traders applied technical analysis to profit from Osaka’s rice futures market, to the 1930's Wyckoff Method still taught in major trading houses today, technical trading withstands the test of time. That's because it's based on price patterns and those price patterns are based on human behavior. Specifically, trading is based on auction mechanics.
So, at a time when the major tenants of investment valuation have been undermined, is it any wonder that technical trading is gaining in popularity again?
- How can you trust a DCF model that assumes a positive risk-free rate?
- How can you trust a P/E ratio when companies are sacrificing dividends for stock buybacks.
- How can you trust an economy with stock prices that move in the opposite direction of earnings?
In other words, now, more than ever, investors are looking for a confirmation -- a confirmation that the fundamentals aren't lying.
Technical analysts study price trends. We look for patterns that play out regardless of the asset being traded. That's why technical analysis works for everything from rice in Osaka Japan to soup companies like Campbell's (CPB).
Fundamentally, Campbell Soup Company excels in both good and bad times. In other words, people find a use for its products no matter what's happening in the world.
Here's what the CEO had to say on the last earnings call:
“In the quarter, we experienced unprecedented broad-based demand across our brands as consumers sought food that delivered comfort, quality and value. This demand resulted in double-digit increases in organic sales, adjusted EBIT and adjusted EPS. In addition, Campbell’s products were purchased by millions of new households, with total company household penetration increasing over 6 percentage points in the quarter compared to the third quarter of fiscal 2019.”
We can see this upward trend play out on the technical level as well.
The chart below is split into 4 segments. The top segment is the price chart and the bottom 3 segments are the technical indicators I use to confirm the price trend. As you can see from the top segment of the daily price chart below, the company has been trending up since the beginning of 2019.
For now, let's just focus on the upper part of the chart. The black vertical line is where the company was in September of 2019. The white box is the period in time that the market rallied due to COVID. The yellow and green lines represent the moving average. As you can see, the market likes to use the moving average as a point of support and resistance. This is because institutional traders like to buy and sell at these areas.
Now, let's look at the bottom part of the same chart (see below). We're going to compare last year (yellow circles) to this year (blue circles).
As you can see from the price chart at the top, marked by a yellow circle, Campbell's took off in September of last year. Now let's look at the three indicator charts below the price chart. In all three charts, as noted by the green up arrows, the indicators are trending up, which confirms the price trend.
We're coming up on the same time period for 2020. This is marked by the blue circles on the right. The price is going up moving into September 2020, but it looks like it's ready for a pullback.
Now let's look at the 3 indicator charts below the price chart for confirmation. These indicators confirm that the price trend may be reversing, at least temporarily. In all three charts, as noted by the red down arrows, the trend is down or about to go down.
Conclusion: It would appear as though CPBs price is trending up, but it's slightly oversold after the last earnings call so investors can expect a minor pullback. The question is how far? We can use trend lines to answer this question.
The chart below shows trend lines in blue. The trend was lost during the COVID rally, but soon returned to normal. We can use these blue trend lines to help extrapolate the price for the next 2-3 months.
Long-term play: Buy the pullback. Both the trend-line and the moving average converge around $49.15, which is the best place to put your buy order.
Short-term play: You can sell now with a take profit at $49.15. Or, you can buy at $49.15 and take profit at $55 even.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Monday, August 10, 2020
“It's only when the tide goes out that you learn who's been swimming naked.” -Warren Buffett
I love this quote by Warren Buffett, because it's so true. That's one reason I like to trade futures. With futures, the only way you're going to get caught is if you swim against the tide. So, the most salient phrase of advice for trading futures is: the trend is your friend. In this way, it does not matter if the tide is out or in, just that you know which way it's going. If you can figure out a way to follow the trend, you will do very well in the futures market.
The focus of this post is on the futures market. It's a market that most people are taught to stay away from, and rightly so. However, due to the volatility in today's market, it's also very lucrative, which warrants attention.
So, let me be clear, futures, the investment product I'm about to introduce, cannot be tamed. It is a beast. Think of it as the perfect wave for the experienced surfer.
Due to the unprecedented amount of liquidity being pumped into the market, these are incredibly volatile times. The waves are HUGE -- they are the kind of waves that people spend their entire lives trying to find, and they're happening every day. They are also the kind of waves that wipe people out, especially inexperienced surfers.
So what are the advantages of trading in the futures market? The futures market is like the stock market on steroids. Market movements are more frequent, which makes technical trading easier.
Technical trading is the art of using historical trends and patterns to guide your trades. This is different from fundamental trading, which uses information about the market to guide trades. Most investors use fundamental analysis to determine what to buy and technical analysis to determine when to buy it. The futures market is largely driven by short-term, technical trades. Traders note certain price points and bid or sell at those price points.
It's important to remember that trading takes place as an auction. It is an electronic auction with hundreds of buyers and sellers. When more buyers enter the room, the volume of bids goes up, which usually increases the price. Likewise, when buyers leave the room, the volume of bids decreases, which decreases the price.
Like anything else, trading is a sport. It is said that you must dedicate 10,000 hours to anything to master it and the same can be said for trading. It takes stamina and like large waves, must be respected.
I started my own journey with trading almost 20 years ago as a trading assistant on the FX sales and trading floor of a large investment bank. I didn't start trading on my own until 13 years later. Then, it took another 3 years for me to start taking it seriously.
I often ask myself if the journey was worth it and the answer is a pensive yes. The answer is fragile in the beginning, but then over time grows more certain until I gradually realize that it's one of the best things I've ever learned how to do.
Honestly, I struggled with discussing my life as a futures trader because you will have bad days and I didn't want to be responsible for those bad days. If you do this right, you will come to hate me, but then, as you improve, you'll thank me for it. I'll take a bottle of your favorite red wine as a thank you.
What's the first thing you should do? Take one year to learn through simulation. Try out at least 5 different platforms, including Ninjatrader and Tradovate. Figure out how you like to see the market. Do you like charts or POC data? Do you like a white or black background? What are your favorite indicators? I'll share some of my favorite indicators with you in a follow up post. This is called, "Developing your workspace" and it is uniquely yours. It takes time to develop.
In year two, you're ready to pick your trading instruments. Do you want to trade the futures equity markets or the futures commodity market? There are dozens of futures markets to trade. The one you select depends on your trading style and personal interests. I'll discuss why I prefer the equity markets in a later post.
In year three, you're ready to test the waters with a live test on a virtual $50K account. Repeat this every 6 months, and no sooner. Over the next 3 years you will develop a few strategies that work for you. You'll go from losing money, to breaking even, to making money.
If you're just starting out, I recommend two trading houses where you can watch live trading and discuss trading with others. Learning the lingo is just as important as developing your trading plan.
The first house is TopStepTrader. These guys have been around a long time. They are a reputable online shop and they have free classes and webinars that you can attend and listen to on a daily basis. To be clear, these classes and webinars are free, YOU DON'T HAVE TO PAY FOR ANYTHING TO LISTEN & WATCH.
I also recommend Collective2. This is for people that want to follow the trades of another person. I just started a virtual hedge fund on Colletctive2.
I trade between 1 and 5 contracts on a daily basis and you can sign up to follow my trades on a real time basis. You can even auto-trade my trades for $150. I made $4,165 for each of my followers just today and future posts will discuss the nature of these trades.
These are just two of my favorite ways to monetize your trading knowledge without having to invest your own money. I will continue to share others with you in future posts.
The most important thing to remember is that you can learn a lot without spending any money. Max out on the free-trial offers and when you run out, contact the company and ask for an extension.
Tuesday, May 5, 2020
My predictions are roughly the same as they were before the virus: buy capital assets -- stay away from debt, but everything else is fair game.
Because prior to COVID, the Fed was fully committed to supporting the market. And now, after-COVID, the Fed and every major central bank around the world has doubled down on their commitment to support the market as this AP reporter discusses in the following segment:
So my predictions for 2020 remain the same, except for a few changes, which I will discuss at the end of this post.
For a glimpse of what my predictions were before the virus, here's a post I wrote in January 2020. It was titled, "2020 Predictions":
There are several ways to look at the current market, but the best is with a historical lens.
We know that debt deflation is on its way, if not already here. We also know that the Federal Reserve has more power than it ever has. It has the full use of the American dollar and new tools like quantitative easing and reverse repo agreements to pump large amounts of liquidity into the market.
Central banks all over the world have done the same. Japan is the leader of the pack, followed by the EU. They are in a panic to stave off deflation. So much so, that they employed a policy of negative interest rates. A move which is akin to winning the battle by moving the sun.
But, now that we know the extent to which central banks will go and the degree of power they have over the world economy, I think it's fair to say that we shouldn't be surprised by anything. I predict two things will happen over the next 50 years:
1) The stock market will be permanently supported by the Federal Reserve. It will never come down.
2) The United States will enter into a long, protracted deflationary period. It will experience massive layoffs and bankruptcies as the rest of the economy cycles through what should be a recession.
In other words, what you can expect is a stock market that's booming -- anyone that owns capital assets will do very well -- but an economy on rails.
Your portfolio should be heavy on index stocks and grocery store chains. You should be quietly accumulating bitcoin, but not in large quantities, and only on dips. Gold, silver and other precious metals are also a good play. These are also great opportunities to load up on your HSA and 401k.
The only thing I would add to my prediction is to stay away from all bank and travel related stocks, but all other capital assets are on the table.
I've also added a new asset class for some of you -- futures. For most people futures are scary and they should be, but there is no better time to be a trader in the futures market. What does that mean for you? It means there's a lot of volatility in the market.
That does not mean futures are easier to trade in times of high volatility, it means it's easier to make money if you already know how to trade.
Brokers make money from every trade, so naturally they're going to tell you that volatility makes trading futures and options easier, but it doesn't. That would be like saying higher waves makes it easier to surf. High waves are actually very dangerous if you don't know how to surf. They are only good for those that already know how to surf. Everyone else WILL GET WIPED OUT.
Trading is like any other sport. It comes naturally for some people; it takes 10,000 hours or more for others.
In my next article I'll talk more about the futures market and how you can participate.