Alan's Trading Update

[Alan Rich Online 10]

Hello Traders,

 

I am am ex-city trader and I have been trading the market for over 15 years full time.

 

After speaking with an admin about my posting they decided it's best that I post on one continuous thread, if you are new to this thread jump to the last page to get my recent market updates.

 

I mainly trade the Forex Majors, the S&P futures and US stocks.

 

-Alan Rich

[Alan Rich Online 10]

Two things happened yesterday. The Yen pairs were still strong but held back by the S&P futures running out of steam.

 

The EURO has got really good strength right now, everything is going for it. You could pair it against the Yen or the Dollar.

 

As I say the only thing that held things back yesterday was the S&P futures. It is now down on a bottom trend line in the intra-day charts. If the US session decides that this is enough and they are buyers then you could get a day when everyone becomes buyers.

 

Lets have a look at how the S&P futures ran out of steam and very slightly held the party back. If you think they can bounce from here then it's the Euro pairs that will benefit.

 

 

This is the EURUSD move everyone is watching. Can it break through major old resistance?

 

You can see the pause yesterday due to the things we have already talked about. Now everyone is watching to see if it can break through and hold once it does so rather than it being a fake move.

 

Here is the EURUSD chart.

 

[BlueHorseshoe 10]

Two things happened yesterday. The Yen pairs were still strong but held back by the S&P futures running out of steam.

 

That's real swell, Alan, but I think your threads might be a bit more interesting if you got Lee in to do them - or aren't you two pals anymore?

 

BlueHorseshoe

[tamag 10]

Two things happened yesterday. The Yen pairs were still strong but held back by the S&P futures running out of steam.

 

The EURO has got really good strength right now, everything is going for it. You could pair it against the Yen or the Dollar.

 

As I say the only thing that held things back yesterday was the S&P futures. It is now down on a bottom trend line in the intra-day charts. If the US session decides that this is enough and they are buyers then you could get a day when everyone becomes buyers.

 

Lets have a look at how the S&P futures ran out of steam and very slightly held the party back. If you think they can bounce from here then it's the Euro pairs that will benefit.

 

 

This is the EURUSD move everyone is watching. Can it break through major old resistance?

 

You can see the pause yesterday due to the things we have already talked about. Now everyone is watching to see if it can break through and hold once it does so rather than it being a fake move.

 

Here is the EURUSD chart.

 

 

Yes! yes! & yes! looking good to 13600 and if that holds watch out for 15000

[TheDude 10]

That's real swell, Alan, but I think your threads might be a bit more interesting if .......

BlueHorseshoe

 

 

Well I was going to say if some reason was given as to what the Yen has to do with S&P500 in terms of correlation. If there is a relationship, one would expect there to be some fundamental reason. None is given.

 

Anyone?....

 

Maybe Alan thought the crowd over at Traders Lab are the same new bloods one finds at Trade2whinge. Sorry Alan, I think you'll find the participants more knowledgable here, and the mods more driven by content than feeding the populous with text book drivel....

[Alan Rich Online 10]

Remember only intra day traders know what’s really going on and can react first.

Everyone else will either be one day late or have some ridiculous theoretical reason why some imaginary move will occur.

 

Real time is key to what is happening.

When we are trading intra day and banking our smaller moves try and work what is truly going on underneath. What is really setting up. Remember you will know about it first and if you see it occurring then jump on the train because its leaving the station.

 

What ever you do, don’t go and listen to retail traders talking to other retail traders on the web. Don’t be fooled if they are chief market analyst for XYZ, that’s just someone who knows a bit more technical analysis than you do. He is employed by his company to give the crowd what they want to hear so they trade more.

 

Lets take the EURUSD on Friday. Whilst I’m trading it I said were down in the fibs by the ellipse in the morning. The only way we can get a run is to let the US session do it for us, the morning’s momentum has gone. So when the US come down and do the re test and it holds, and then we bounce, you know the odds are this is leading up to the breakout later in the day that so many people are watching for.

 

The train is starting to move. The next two pullbacks are buyable, shown by the arrows. Hit it hard and go for the run. You are in before everyone else.

 

Let everyone else talk about it afterwards, which is what they like doing. Let the gobbly gook technical analysis traders cancel their last stupid analytics and make new ones on Monday based on what just happened.

 

We saw it first, we traded it first and we’ll sell to those that join it late and take our profits. That is good trading.

 

That is how you make good profits.

 

Here is the EURUSD chart showing when we saw it setting up and how any of the pullbacks shown were great buying opportunities.

 

[Alan Rich Online 10]

The yen was collapsing against the dollar after being in a trading range for the last 2 weeks.

 

I think the S&P is correlated to the dollar.

 

Hope that helps...

[Alan Rich Online 10]

For the US markets and the US dollar, Lets substitute the S&P futures and the EURUSD.

 

There is a big correlation between S&P futures and the EURUSD.

 

Analysis of these two instruments can give us and edge in our day trading right down to the stocks we are trading.

 

These two instruments are the leaders, what they do galvanises the market and gives it its underlying direction. At times they will trade together and at times they’ll diverge and go their separate ways. When they diverge then one very often pulls the other back in line.

 

By understanding which one is the strongest at any one moment and the true leader we can get the heads up on the next market direction. Of course stocks are governed by how the S&P futures behave and therefore by understanding its movement helps us with our day trading.

 

Imagine finding a momentum stock poised to soar and the S&P futures set to move the same way, odds are you are on a winner and can get a very good run. Imagine finding the same momentum stock and the S&P futures due to collapse. Then after the initial euphoria that stock is likely to run out of steam quite quickly and fade.

 

The biggest Dollar cross is the EURUSD so watching that and the S&P futures helps us understand what the US markets and the US dollar are doing and gives us the heads up on the next potential market direction.

 

In the chart example the EURUSD is above S&P futures are below.

 

The S&P futures had been very lacklustre from the day before on the left and really only moved up because of the EURUSD dragged it up. When the EURUSD lost its momentum and went sideways the S&P futures collapsed shown by its black arrow. We now know the market is inherently weak. The next day as the S&P futures carried on its overnight drop, momentum suddenly powered into the EURUSD and once again lifted the S&P futures plus of course many, many stocks. This is shown by the red arrows.

 

We now know that at this moment in time we have a weak market that is only being held up by a weak Dollar. (This is showing its hand by the movement of the EURUSD which is strong. i.e. a weak Dollar and strong EURO.)

 

If the EURUSD stalls or any bad news comes out which affects it then the market has relative weakness against it and will drop. At this moment in time the EURUSD is the leader and the S&P futures is following. This gives us an edge in understanding what the underlying sentiment of the markets is and helps us take our trading decisions.

 

In essence these two tell us the big picture that’s occurring at any moment in time. Some traders trade stocks but equally there are some that just trade these two big leaders. I’ll show you how to do it all.

 

[BlueHorseshoe 10]

The yen was collapsing against the dollar after being in a trading range for the last 2 weeks.

 

I think the S&P is correlated to the dollar.

 

Hope that helps...

 

Hi Alan,

 

Can you provide some sort of stat to support this belief?

 

Thanks,

 

BlueHorseshoe

[Alan Rich Online 10]

Look at Friday and that massive move in the EURUSD!

 

I have said before many, many times how important it is to have an understanding of the US market.

 

As soon as the US started trading it did the things it should do and ran all day. It's these things you need to know because it will get you in before the crowd.

 

An easy way of watching the US day is by watching the SPY's. They'll show you any gap plays.

 

I really believe that we need an understanding of the intraday, intraday traders and the moves in the market is the driving force, processional traders moving the markets. The move up in the S&P futures and the DOW yesterday was yet another example.

 

They see it occurring before their eyes, everyone else will be one day later than you and all the gobbly gook technical analysis guys will curve fit their analysis to fit what we have just played.

 

Below is a chart of the SPY's showing how it played the gap. The US market trades until 9pm our time in the UK many traders come home from work and trade it in the evening. If it's a strong market it runs hard into the close, which is what it did yesterday. So even those guys can be in before the crowd.

 

[BlueHorseshoe 10]

 

I think the S&P is correlated to the dollar.

 

 

You might want to take a look at the chart below - the S&P and the Dollar certainly don't seem to be correlated . . . Or have I got my charts upside down?

 

Do you have any other pearls of wisdom that you'd like to share with us Alan?

 

BlueHorseshoe

[TL Staff 10]

Hi guys,

 

This is a great discussion, definitely.

 

I hope we can discuss the correlations and come to a conclusion (or agree to disagree), for the benefit of our users and attracting new useres. In that spirit, let's keep a positive tone to encourage both sides to pose their arguments.

 

Thanks!

[Alan Rich Online 10]

So you can't see that one goes up while the other goes down or vice versa?

 

As the dollar gets cheaper you can buy more US shares for that dollar...

 

Please tell me you can see that...

 

Any one else? One goes up the other goes down. No?

[BlueHorseshoe 10]

Hi guys,

 

This is a great discussion, definitely.

 

I hope we can discuss the correlations and come to a conclusion (or agree to disagree), for the benefit of our users and attracting new useres. In that spirit, let's keep a positive tone to encourage both sides to pose their arguments.

 

Thanks!

 

Hi TLadmin,

 

What was it about this thread that caused you to post again after an 8 month absence?

 

Unfortunately there are not "two sides" to this argument. There is just simple fact (the fact being whether the two instruments are or are not correlated).

 

As far as "benefit to users and attracting new users" goes, I would suggest (based on my experiences of TL) that your users respond better to objective factual content than they do to anecdotal nonsense of the kind that the OP was offering. We're in familiar vendor territory here - asked to provide any kind of evidence for the claims being made, the OP flees the thread and goes to troll for customers elsewhere.

 

I could be very wrong, but I would guess that most of TL's income comes via advertising from major brokers etc, and not from small-time vendors with dated websites. Might the best way to encourage and maintain traffic here would therefore be to encourage and support quality content, and not the sort of unsupportable claptrap that is being pedalled in this thread?

 

Of course, that's all just my opinion

 

BlueHorseshoe

Edited December 19, 2012 by BlueHorseshoe

[TheDude 10]

The correlation between S&P 500 and USD/Yen is currently -7 over the last 180 days, 31 over the last 60 days.

 

Generally, a correlation of ~80 is considered a stable relationship

 

 

MRCI's Inter-Market Correlations

 

The spread between the 2 seems to be widening (this chart isnt an equity spread though - which would be more useful given the different tick values)

Edited December 19, 2012 by TheDude

[BlueHorseshoe 10]

The correlation between S&P 500 and USD/Yen is currently -7 over the last 180 days, 31 over the last 60 days.

 

Generally, a correlation of ~80 is considered a stable relationship

 

 

MRCI's Inter-Market Correlations

 

The spread between the 2 seems to be widening (this chart isnt an equity spread though - which would be more useful given the different tick values)

 

Hi Dude,

 

Thanks for the link to the correlation table - might have saved me some work!

 

The chart correlation I posted was over 5 days, I think, but it doesn't make a great deal of difference. I used a dollar index tracking ETF as the link with Yen was more implicit in Alan's statement than the relationship with the dollar itself.

 

Alan is quite unlikely to re-visit the thread, I expect, so it's probably somewhat a moot point . . .

 

BlueHorseshoe

[Alan Rich Online 10]

Whilst day trading you need to understand exactly what's going on underneath because when the underlying story reaches its conclusion that's when you get your blow out moves.

 

When you are right and you can feel it, trade it with larger size.

 

You can make a week's money on just one of those moves.

 

In the example from yesterday the EURJPY consolidated for so long that the US would either run the stops or go for the break.

 

That intra-day consolidation was key. However you had to be an intra-day trader to know it was happening.

 

The chief market analyst at "We want you to trade more securities." is so busy he just writes about what's happened and then makes up some technical analysis to look good. Then he gets it syndicated on the web and his company are happy.

 

Joe Bloggs reads it and takes his cue from that. You see how late they are to what's occurring.

 

Find out what's truly happening intra-day because you are there first. You are the ones that make the money all the rest are followers.

 

The key yesterday was the consolidation ringed. Where so many would take their end of day analysis is shown by the black arrow. Who is the winner? The web reader at the black arrow or the intra-day trader who knows what's going on at the ellipse?

 

A quick lesson: "When you are right and you can feel it, trade it with larger size."

 

[TL Staff 10]

Hi TLadmin,

 

What was it about this thread that caused you to post again after an 8 month absence?

 

Unfortunately there are not "two sides" to this argument. There is just simple fact (the fact being whether the two instruments are or are not correlated).

 

As far as "benefit to users and attracting new users" goes, I would suggest (based on my experiences of TL) that your users respond better to objective factual content than they do to anecdotal nonsense of the kind that the OP was offering. We're in familiar vendor territory here - asked to provide any kind of evidence for the claims being made, the OP flees the thread and goes to troll for customers elsewhere.

 

I could be very wrong, but I would guess that most of TL's income comes via advertising from major brokers etc, and not from small-time vendors with dated websites. Might the best way to encourage and maintain traffic here would therefore be to encourage and support quality content, and not the sort of unsupportable claptrap that is being pedalled in this thread?

 

Of course, that's all just my opinion

 

BlueHorseshoe

 

I awoke from the dead. I hope to be a bit more involved now!

 

Yes, you are right in that we don't want nonsense on this website. If there is someone posting junk hoping to troll for customers do let them know they are wrong, as you were doing. That last chart showing a lack of correlation was actually rather helpful!

 

Feel free to PM me if there are issues on the site or someone trolling. I have had to msg a few people in the last 2 days alone with warnings now that I am more involved.

[Alan Rich Online 10]

So you disagree about a correlation between the S&P500 and the EURUSD or Dollar Index?

 

Fair enough

 

TheDude

 

Pull up a correlation between @ES and EURUSD the 2 charts I posted. I found a few sites on the correlation but better for one of you 2 to pull it up I think...

 

Cheers

[TheDude 10]

Hi Dude,

 

Thanks for the link to the correlation table - might have saved me some work!

 

The chart correlation I posted was over 5 days, I think, but it doesn't make a great deal of difference. I used a dollar index tracking ETF as the link with Yen was more implicit in Alan's statement than the relationship with the dollar itself.

 

Alan is quite unlikely to re-visit the thread, I expect, so it's probably somewhat a moot point . . .

 

BlueHorseshoe

 

Considering Alan is looking at day trading (from memory), a 5 day correlation is probably a lot more useful than those I posted earlier. I've been told that correlation isnt really measured on an intraday basis - I cant think why.

 

Using other markets as an indicator is a popular approach. The issue (for me) is often knowing which market to use and when.

[Alan Rich Online 10]

The US market was a bit tough yesterday.

 

We sold off into the Fibs which was fair enough. But the bounce was tough.

 

At the same time the EURUSD hit the Fibonacci extension and sold off along with the EURJPY.

 

I got stopped out of the things I was trading so I decided to give it a break. I take a break when I get stopped out of a position to make sure that I am not trading belief. I wait and see what the market is doing rather than jumping back in again. Take time to reassess the situation, maybe you have missed something, maybe something is happening that you didn't see originally. Look at the larger time frames, check the news, see how your mood is, get your emotions in check.

 

Here is the chart of the EURUSD and that Fibonacci extension.

 

 

You can see from yesterday how important the US market is and why it can dictate moves. They can kill a move stone dead like yesterday.

 

You can be euphoric from the day before and from the morning, your account can show really big profits and then wham the US reverses and you get stopped out of your positions. That's what happened to me on EURJPY.

[Alan Rich Online 10]

U.S. Index futures slumped.

 

Asian shares declined and the yen strengthened.

 

The U.S Index futures have slumped, meanwhile Asian shares have declined and the Chinese YEN has strengthened after House Republican leaders cancelled a planned vote that would permit higher taxes amid stalled budget talks.

 

The delay in the budget talks is strengthening the US Dollar and the YEN.

 

You can see how all this is reflected in the Dollar Index.

 

[Alan Rich Online 10]

My predictions for 2013 are this.

 

Inflation is rearing its head and everything is starting to cost more, this wont stop and will only continue.

 

Keeping money on deposit is a waste of time and people will slowly realise that if they don't do something positive with their savings they will only drop hugely in real terms. In five years time they will wonder what has hit them. Wages will still be low and ordinary day things will be very expensive. Sensible people will start taking action in 2013 to protect themselves and many will start investing and trading the markets.

 

The Yen will be volatile and worth traders keeping a close eye on it in the year ahead.

 

The S&P futures will continue its up trend because Obama and the FED are committed to it.

 

The EURO will continue to rise unless a catastrophic event occurs. They have just done enough to keep things ticking along OK.

 

Gold will fall not rise in the near term.

 

The game is up for Apple and the shorts will jump on it until they drive it so low that it becomes worth buying again.

 

The US market will be the place to be and all the major moves will be directed from there.

 

Have a happy Christmas.

[Alan Rich Online 10]

Keep watching the EURO its strong and could continue over the holiday period.

 

Watch EURAUD, EURNZD, EURJPY, EURUSD!

 

You know those highs we put in recently, check out how some EURO pairs are attacking them again.

 

Here is the EURAUD with those highs marked.

 

[MightyMouse 12]

The Euro is rising. There is a distinct difference between the Euro rising and it being strong.