A Stop, Pass, Pass, Target, and a Chicken Dance

Perhaps I can only follow a plan for so long in a day before my rebellious nature exerts itself.

Took the stop on the first trade, passed on the next 2 signals due to longer time frame charts not in congruence, got my target on the second trade, and then chickened out of the third trade.

Question is who am I rebelling against?

Crude Oil Chart

Green is Gold

2 Minute Crude Oil

Let the first long go without me as I was waiting for the longer time frame charts to confirm. Stop wasn't big enough to stay in the first trade but caught the second for target.

That appears to be it for today.

Ho Hum II

Can anyone name one single improvement in the new blogger format?

I can name a few disimprovements. (I love it when I make up new words) Such as I can't embed 2 charts on one post, no spell check anymore, preview screen is now too small.

Humbug!

2 Minute Crude Oil Chart

Ho Hum

2 Minute Crude Oil chart

The Oil Kingdom

Interesting story from 60 Minutes on Saudi Arabia's oil business.

The energy industry is unsure of what Saudi Arabia's actual proven oil reserves are, as they produce millions of barrels a year and their stated proven reserves never go down.

Part 1

Watch CBS Videos Online
Part 2

Watch CBS Videos Online

The Name Has Changed

Trading crude oil becomes capital is scarce.

The re name the blog poll died from boredom and I unilaterally chose the new name. Again the reason for the change is I have started trading the equity futures again. So, trading crude oil didn't seem to fit anymore.

I will go back to crude oil again I'm sure, but for now the DOW is the thing to trade.

Today's trading was live and profitable. The chart was a mixture of some things I learned from my scalp test, my old trend system, and some Irish mystical nuances.

I'm not posting anything until I get the plan straight.

China Sharply Raises Energy Prices

"China is faced with increasingly severe fuel shortages for truckers and farmers and the prospect of blackouts during the summer air conditioning season."

Click on the read more icon for the full NY Times story.


read more | digg story

The Real Price of Crude Oil

Some interesting commentary from Congressman Ron Paul (who really looks like he needs a nap) and Paul van Eeden regarding "real inflation"; the increase in money supply.

The only real answer for consumers in my opinion is to keep cash to a minimum and own hard assets.

Those assets being real estate, gold, commodities, and the companies that produce and finance those assets.


The talking heads on CNBC wouldn't shut up long enough to let Paul van Eeden speak. There is a better interview with him on BNN. Click on the post title or the read more icon at the bottom of the post to go the BNN video.


There is a lot to mull over from the two Pauls. Has the fed policy from Greenspan on all been a shell game that will eventually end badly? Or is it ending badly now? Has the, we don't have recessions anymore, policy of soft landings and hidden inflation all been accomplished by printing money?

Many questions and many different answers I'm sure.

My answer remains, in real or imagined inflation, hold hard assets.


read more | digg story

Crude Oil Hits New Record High

Great headline, all crude oil speculators must have made money.

Right?

Not me.

Losing day today with the big move happening in the "overnight" trade. (It wasn't overnight for them)

The Asian and European traders should have had a good day, and I guess I should have been to work at 4:00 am to participate as well.

The important thing for me to recognize today was that the signals were not working so I should limit my trading, in other words, preserve capital. Most traders, me for sure, can get caught up trying to recover losses by trading more than they should.

A nasty trading flaw known as revenge trading. A very bad idea.

I came away with 2 break evens and 2 full stops and called it a day.

We live to trade another day.

34 tick range bar chart. (click for better view)

13 tick range bar chart.

More Oil, Higher Price?

The U.S. Department of Energy's petroleum report came out today showing crude oil inventories rising.

The crude oil response was to move up to its highest price ever, over $123 a barrel.

The efficient market theory is a wonderful thing as long as you remove humans from the equation.

While this is all fascinating it didn't affect my trading today. The report usually provides more range to the crude oil contract and while today's response was fairly muted there were still a couple of good trading opportunities.

I'm showing the 2 charts I watch throughout the day, the 34 and 13 tick range bar charts. I am looking for confirmation on both charts to trigger a trade.

The first trade wound up with a break even stop, the second was a nice winner with the ADX turning white as the exit.

You will also note I missed a nice move at 8:55, I wasn't paying attention and by the time I noticed it was moving so fast I passed rather than try and jump in late.

It happens.

34 tick chart.

13 tick chart.

13 tick chart.

Fear and Greed

Fear and greed are normally considered opposite emotions in the trading business.

Is it possible that fear and greed are both driving crude oil in the same direction?

The greed factor is easy enough to recognize, price is going up, buy buy buy.

The fear factor is normally looking to lock in gains, don't let this profit get away, sell sell sell.

What if the fear factor is also buying crude oil.

Imagine your country running out of oil; now imagine you're the leader of that country running out of oil. The drive to secure supply is becoming a major fear from countries like China and the USA.

You can't remove carbon from this economy without this economy collapsing; collapsing to a level we have never seen.

That is why wars have been, are currently, and most likely will be fought again over crude oil supply.

That may be the fear that is rowing right beside greed in this oil market.

Trade the Plan

How do you have a $500.00 winning crude oil trade and feel like an idiot?

By not following your plan and missing the $930.00 that came after your brilliant exit.

The trader in charge (me) was watching the 8 EMA and the CCI 100 line cross and came to conclusion that he should move his stop to protect profit.

The ADX, who is not in charge, said there could be some more downside here, lets hang on until I turn white. Which is how the trading plan is written based on hundreds of trades showing that this is the best exit.

I don't mind leaving money on the table when it happens within the confines of the trading plan, but when I deviate from the plan and it costs me money... well let's just say I was not happy.

The plan and the ADX were right.

The trader in charge (me) was wrong.

Trade the Plan.


(click on chart for better view)

Crude Oil on Sale?

The eternal question, how high will it go, just won't go away. That along with the blank stares when I tell them I don't know are starting to annoy me. So I will step out and say this may be it for a while.

So there it is my prediction, which I will stand by until it goes higher. :)

The downdrafts on crude oil today were quick and violent. There seemed to be a hint of panic selling at times today. If the street's money flow starts to move out of crude oil the reversal will be interesting.

Oh and by the way, I still don't care where the price of crude oil goes.

The Oil Sands

Crude Oil Mining


Interesting how the media works, Suncor has been in production north of Fort McMurray, Alberta since 1967. One item on American television and suddenly everyone wants to know about the "oil sands".

The price of crude oil has a little to do with it I'm sure. :)

How the world's demand for oil, while at the same time demanding lower carbon emissions, is going to work out I don't know.

It seems to me if the world really wanted lower carbon emissions the demand for crude oil would be going down not up.

Does do as we say not as we do sound familiar?



The sub title language is also interesting.

If You Can't Beat Them.....

The talking heads say crude oil prices are being driven by speculators, if that is the case then it is going to be a violent drop when the speculators leave, or turn short. For now there appears to be no limit to the upside.

Entry points for today 04/18/2008 NYMEX Light Sweet Crude Oil June Contract
(click on chart for better view and click again when chart opens for larger view)

Fortune

I think Fortune magazine has the most talented editorial staff in the business field. They have been doing some great work following the recent wall street "issues".

Pick up a copy or have a look online.

http://money.cnn.com/2008/03/28/magazines/fortune/boyd_bear.fortune/index.htm

http://money.cnn.com/2008/04/03/news/companies/2boutthedoor.fortune/index.htm

http://money.cnn.com/2008/03/31/news/economy/gelman_taleb.fortune/index.htm

You can click on the Fortune title to go to their home page.

Expectancy

“At the heart of all trading is the simplest of all concepts—that the bottom-line results must show a positive mathematical expectation in order for the trading method to be profitable.” Chuck Branscomb

Dr. Van Tharp has written extensively on the subject of expectancy and using R multiples to categorize your trading results. We have taken excerpts from his book, Financial Freedom via Electronic Day Trading, Van K Tharp & Brian June, and from his newsletters to summarize how he uses R multiples and expectancy.

Van Tharp categorizes the risk you have in each trade as an R (risk) multiple. So your trading system can be characterized as a distribution of the R multiples it generates and expectancy is simply the mean of the R multiples generated.

Many people feel that trading the futures markets is extremely risky as they have “heard” of people losing all their money, and then some. This can certainly be done with the use of margin and no risk management rules. However if your trading plan is a function of R multiples you cannot suffer this fate in one blow. You could however still die a death of a thousand small cuts if your system does not have a positive expectancy.

The secret to survival is determining your maximum losing R multiple. So even though we are trading a contract worth $113,000.00 (1 contract of crude oil = 1000 barrels X current price $113.00) we only risk a maximum of 1R on each trade.

For our system the hard stop is equal to our 1R multiple, so the maximum we are prepared to lose is 1R.

We determine what dollar value 1R will be based on 2 factors. The first, as per our risk management rules, is we will only risk up to a maximum 0.60% of our total capital on each trade. That number in itself may not be realistic depending on how much capital you have and the product you wish to trade. If we need to risk more than that as per our stats then we either have to quit trading, trade a different product, or add more capital.

The other factor in determining our 1R multiple comes from our sim and live trading statistics with the product traded. These stats tell us where we should be setting our hard stop in order to give the trade room to oscillate while protecting our capital in the event the trade does not work for us. Therefore as long as the hard stop (1R) required is less than or equal to 0.60% of our total capital we know we can trade this contract.

To put this in dollar terms based on our stats the hard stop for the crude contract traded within our system is $120.00. So even though we are trading a $110,000.00 contract the most we are prepared to lose per trade is $120.00. So in our system 1R is equal to $120.00.
With the dollar value of 1R in hand we then categorize our winning trades as multiples of R. For example a $240.00 winning trade would be a R2 win, a $600.00 winning trade a R5 win and so on.

When you have a series of profits and losses expressed as R multiples you have what Van Tharp calls an R multiple distribution. Once you have a database of trades providing your R multiple distribution you can do 2 very important things. One, you can determine your systems expectancy and two, you can project your systems results over many more hypothetical trades.

Expectancy gives you the average R value that you can expect from the system over many trades. Put another way, expectancy tells you how much you can expect to make on the average, per dollar risked, over a number of trades.

Expectancy is calculated as follows:

Expectancy {[(Average Profit) * (Probability of Winning)] Less [(Average Loss) * (Probability of Losing)]}/ Average Risk Amount

After this calculation is done and you have proven your system’s positive expectancy number (if it’s negative you go back to the drawing board) you can then take your R multiple distribution and project future results.

We use a software program called Money Expert provided by MTPredictor for this projection. This spreadsheet beautifully demonstrates for us what Mark Douglas talks about in his book, Trading in the Zone, as we have previously discussed in our probabilities section.

“The successful trader understands that each individual trade is independent of every other trade; each trade is a unique event where the outcome is random. If you focus on each trade individually there will be a random unpredictable distribution between wining and losing trades. However on a collective basis the exact opposite is true. If a large enough number of trades are tracked patterns will emerge that produce a consistent, predictable and statistically reliable outcome.” Mark Douglas, Trading in the Zone

The Money Expert software allows us to see this “random distribution” of trades from our own R multiple distribution. We have found this to be extremely useful as we can take a 100 trade sample and run the random distribution to see the results over thousands of trades. This numerically shows the trader how drawdowns and losing months will occur even with a very successful trading system.

It gives you a major deposit of “emotional capital” to help you withstand these drawdowns to your financial capital.

Trading Beans

Some more video from the floor. This is the last trading day of the year for the Chicago Board of Trade Soybean contract. The traders really get rolling toward the end of the video.

This is a good lesson for all electronic traders who trade a commodity that is also pit traded. The frantic opening and closing of the pit session is usually mirrored on the electronic contract and you don't want to miss the moves that can occur at those times.

Trading is Hard

And then termites eat all your money.

Thanks to J the FX trader for this one.


Termites feast on trader's money
By Amarnath Tewary
Patna


A trader in the Indian state of Bihar has lost his life savings after termites infesting his bank's safe deposit boxes ate them up.

Dwarika Prasad had deposited currency notes and investment papers worth hundreds of thousands of rupees in a bank safe in the state capital Patna.

The bank says it put up a notice warning customers of the termites.

Mr Prasad says he did not see it in time as he did not go to the bank for months after the notice went up.

Bank officials admit they did not inform the customers individually about the termite problem.

'Shattered'

"I'm shattered. I do not know what to do as I had kept the money for my old age," Mr Prasad said.

The trader says he had deposited 450,000 rupees ($11,000) in currency notes, investment papers worth 232,000 rupees ($5,660) and some gold and silver jewellery in a safe deposit box of the government-owned Central Bank of India.

Mr Prasad says that relations with his wife and children were strained and he wanted to put the money in the safe box to keep it safe from them.


He started using the safe box in September 2005.

He says when he opened it on 29 January, there was nothing in the safe except termite dust and remains of currency notes and that his investment papers were "badly perforated".

The white ants did not even spare the ornaments and their sheen has vanished, he says.


"I wrote to the head office of the Central Bank of India and the regional offices of the Reserve Bank of India," Mr Prasad says. "Even after two months, I'm waiting for a response from them."

'Not liable'

Bank authorities say they put up a notice, dated 8 May 2007, outside the locker room warning customers about the termite infestation.

They advised customers to remove their documents and papers from their safe.

"We received a few complaints of termites in safe deposit boxes so after putting on the notice, we got pesticides sprayed in the bank," said bank manager YP Saha.

Mr Saha says the customer cannot blame the bank because he did not find his locker broken or damaged.

"The bank is not liable for the deposits kept inside the safe as it is only when a locker is found broken that the bank is answerable," he said.

Bank authorities say they have forwarded Mr Prasad's complaint to higher authorities but they say he is not entitled to any compensation for his loss.


Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/south_asia/7334033.stm

Published: 2008/04/07 11:52:36 GMT

© BBC MMVIII

Trading Crude Oil: Counting Barrels

A new all time high for crude oil ($112.20) was hit today. All time high is quite a statement if you think about it. Crude oil has never cost this much in the history of the world. So that annoying question, how high will it go, is still out there. Pundits base their predictions on past history. This is all new history (is there such a thing as new history?) for this bull market in crude oil.

All traders can do is trade the direction that's in front of them. All consumers can do is stop driving or pay up.

We have another investment thesis that we may discuss in detail later, but the premise is to own companies that you pay hundreds of dollars to each and every month. That way when you "filler up" you are paying yourself, as you own the company. :)

At least today we have a reason for the large move in crude.

Every Wednesday the U.S. Department of Energy publishes their Petroleum Status Report. This is usually a good day for trading as we have the two requirements we need to trade, liquidity and range.

Today the the street was expecting a 2 million barrel increase in crude inventory, and instead got a 3 million barrel decrease. Thus we see action like this. That 3 minute bar after the report came out is a $2030.00 price move. In case you didn't quite get it, that's $2030 in 3 minutes.

Needless to say it's a report you need to be aware of if you trade crude oil. Price action like this will blast through limit orders and market orders will see just a tad of slippage.

It is fun to trade though.