Then all of a sudden a computer came to life with a Skype call from my great friend, America’s pre-eminent trading mentor, Professor Quinto.  He was checking up on our progress this week.

I explained to the Prof last night that we were closing our trading week (I only trade 3 days per week), with our short-term trading at new all-time equity highs, a fact which I wouldn’t even have noticed had not one of my members pointed it out to me.

To those of us in the group who had made almost $6,000 in the three days prior it didn’t seem like an especially great week.

But when going over the records with the Prof he reminded me of the valuable lessons contained within.

He reminded me that we should all be proud of the achievement of the week and encouraged me to share these critical messages with you.

We must always remember what our job is

He is right there are some very important lessons to be learnt from our activities this week so I am going to share these with you right now.  It’s no secret that the last few weeks have been tough, very tough indeed for short-term traders.  Consequently many of us have had to endure an unwelcome drawdown period.

In fact our short-term trading last made its equity high on February 14th, which after allowing for holidays, was six trading weeks previously.  When we came into this week on Tuesday we were effectively at the low of the drawdown as shown by the following chart…

By the close of business on Wednesday we had nicely recovered the whole of the prior six weeks drawdown and having added to that again on Thursday we comfortably closed our week breaking new equity highs once again.

As my friends who take these trades with me in my Trading Den pointed out yesterday, recovering from a six-week drawdown period in just two days is significant.  What it tells us is that we are doing at least two things right…

It means we are keeping our losses small on the losing trades which are inevitable when the market becomes so choppy.

It also means that we are pressing our winners to their full potential when they come along.

…and for those two reasons alone a handful of a very unexciting but profitable trades were all it took to make up for a long period of difficult and choppy market conditions.

It also reminds me of a fundamental principle of trading.  That it is not our job to be right in our trading but it is our job to have a robust plan and to follow it with cast iron discipline.  That is the mark of a professional trader – having a plan and following it without wavering.  It is not about trying to be right on every trade as that is simply not possible for any trader.  But following a plan should be possible for any trader who is really committed to a career in the markets.

But there is often a problem

Here is the problem – not every trader has that commitment and discipline to simply follow their plan.  In the Den we have a simple plan to follow and for participants in this exclusive club all they have to do is to turn up for work and take the trades spelt out for them.  There could not be a simpler way of trading.

Yet here is the strange thing – not all of our members participated in our $6,000 week this week. Some I know are taking a short break from trading for personal reasons or simply because they want to wait until the markets become really active again. That’s fine, in fact that’s a great idea.

But there are others who are supposed to be trading yet sadly do not for some reason have the discipline to turn up each day and take each trade in the simple mechanical fashion that they should be.  Anyone with even limited trading experience, but with the discipline to stick to the plan, could have banked this week’s profit.

But if you casually turn up for work on some days and not others, or if you pick and choose between the trades that you like the look of, or if you flit like a butterfly between one trading plan and another – it is almost certain that you will miss out on the good periods.  Life is just like that for some reason!

Here’s the proof

Therefore it was interesting yesterday to note that the members trading with me last week are all long-term professional career traders, people whose discipline is unshakeable and people who have survived long enough making their living in the markets to really understand the importance of sticking to the plan.

One of the things I find most frustrating in trying to help newer, or historically less successful traders, to get a rung up the ladder is the fact that everybody loves you when you are riding on the crest of a wave and making new equity highs week after week, they can’t get enough.  Yet those are the times to be more wary.  Winning runs don’t go on forever yet that is the time everybody wants to be in on the action.

Yet when more difficult times strike the numbers thin out, people drift away they don’t stick to the plan.  So by the time you reach the end of a flat or drawdown period the numbers of people sticking to the plan have also reached a low.

So at the time of maximum opportunity the minimum number of people choose to participate!

Why is this? Are we just naturally wired to do the absolute opposite of what we should be doing? Because that certainly seems to be what happens.  However those who can get their head around this principle, are those with long-term futures in the trading business.

That is why when I look at the traders who profited so well with me this week it proves this point.  They are all the diehards in the group – the professional career traders who understand that our job is not to be right but it is our job to stick to the plan.

How is your own discipline?

Don’t misunderstand me.  Discipline sounds like the simplest thing in the world to crack.  But in trading discipline is by far the hardest skill to develop and every one of us struggle with it at times.

If you can follow a plan, a simple plan that could not be made easier for you, then you might want to consider joining this elite group of traders.  Not as a substitute for your own trading.  Not as a substitute for your own learning.  But as a means of surviving difficult times and diversify your own trading activity, just like all of the pros in my Trading Den this week.

I do just about everything for you.  All you have to do is to turn up to work for an average of 10 days per month and click your mouse button to take two or three trades each day.  Those are the two things I cannot do for you.  If you can do that with cast iron discipline, then please take a look at…

TradingDen.net

I have a handful of places available, but only a handful and I want those to go to traders with that discipline that is critical for success.  The Den accommodates a maximum of 30 people, half of those seats are filled by the traders who are $6,000 richer this week than last.  Another 7 are taken by traders who are on temporary breaks.  So you can see there are a few places available, but not many.  Have a think, have a read and maybe we’ll even see you in the Den next week.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2012, all rights reserved

If you are a day trader you wont need me to tell you that S&P Emini volume seems to be running at about half of that seen at the end of last year – and that was already pretty pathetic volume at that time!

Lack of volume of course leads to the listless random motion, lack of clear patterns and the nasty short-term spikes we have all been seeing lately. The odd thing is that so many diverse markets seem to be equally choppy and dangerous for short-term trading at the moment.

What should we do?

People regularly ask we what we should do about it. The answer is both simple and hard – be patient! We have no choice as there is nothing else we can do. It is our job to trade when the market offers us an edge and to sit it out when it doesn’t.

The truth is that many traders will be impatient and will get chopped to pieces as a consequence. Many will simply not survive patches like this. That is a sad but inevitable fact of life. Patience is the hardest discipline of all to develop as a trader, but times like this demonstrate why is it so critical for long-term success.

But there is good news too

As many people know I am a day trader but also a position trader. With the day trading my objective is to weather this storm and come out the other side without having lost any significant money.

With position trading the story is much better. Trading off larger timeframe charts keeps you away from the worst of the short-term noise and chop. So with the right strategy you can continue to make money even during times as difficult as this.

So that is what I advise people to do – focus on much larger timeframes at least until this storm subsides.

Even better news for you?

I have thought long and hard about doing this. But the number of requests has increased over the last three months, so I have finally decided to break my silence and once again accept a handful of serious people into my flagship position trading service…

www.SeriousInvestmentReturns.com

The reasons are obvious – this carries on making money while day trading is a bust for most people and most people are looking for something worthwhile to do while day trading is off the cards. Hence my agreeing to take on a few newcomers at this most difficult of times.

We now have 3 profitable years out of 3 since the strategy was launched and many great traders have quietly been using and enjoying this bolt on to their own trading for years now.

Before you ask, I know the question on your lips already! Yes we did make new equity highs again in January and again in February, despite all of the mess that the markets have been throwing at us.

Discipline to hold the positions?

Now as a day trader I too struggle at times with the discipline to hold onto these positions which often run for several days or over a week even at times. So I know it is hard to follow even a strategy as successful as this one.

Believe it or not, some people have not been able to stay the course even with an equity curve as amazingly smooth as this. There is always a temptation to fiddle with the trades intraday or to try and pick and choose which ones to take – neither of which improves performance else I would already be doing it!

So to take away these destructive temptations for those who struggle to stick with the simple clear instructions that the service provides, my great friend George Kleinman is also offering to execute and manage all of the trades for you, if that would make life easier. He has been doing this for a group of our members for the last couple of years and with great success.

Last night I also managed to persuade George to take on a few new people into his side of the service too. So if you are interested both options are now available again – execute yourself of let George handle everything for you.

You can read the whole story, dissect every trade, find out everything you need to know about S-I-R on the website…

www.SeriousInvestmentReturns.com

Hopefully George and I can handhold a few more people through these treacherous times as we have been with the existing members over the last few years.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2012, all rights reserved

But there are two reasons to keep our spirits up as much as possible:

• There is a simple formula for working through such times, and
• Better times are on the way

My survival formula

Those who trade with me in my Trading Den each week already know this formula for surviving times as rough as this. This is why we have been able to hold onto our equity highs throughout this taxing last few weeks.

But for those that don’t know my survival formula, here it is. The plan has three elements to it:

• Trade much less frequently
• Risk far less on each trade
• Be patient and have faith

Trade frequency

Lets say you are typically used to finding 3 to 5 trade opportunities per day, which is about what our short term trading provides us with. In this random noise environment there are actually far fewer real opportunities than normal. Maybe just 1 or 2 per day – if that even.

However noise has this wonderful way of tricking you into thinking you can see opportunities that in reality are totally fictitious. If you are not careful you will get lured into making MORE trades than normal rather then LESS. This is why such environments are so very dangerous and the long term fate of many traders is determined by these very periods.

So my simple logic says that if the number or real opportunities are fewer per day then our number of trades per day must be scaled back. So the solution is to go into the day knowing IN ADVANCE that your number of trades will me a maximum of 50% of the number you would usually expect. Instead of 3 to 5 plan on taking 1 or 2 only and certainly not the 5 to 10 or more that the noise will try to fool you into thinking exist!

When you think you see an opportunity, here’s what you do. Get up off your chair, walk to the back of the room and look at your chart from there. If you still see a nice clear trade set up, take it. If all you see from the back of the room is noise then that is exactly what it is! Sit back down and do nothing except watch the market quickly move to the place you would have put your stop! Trust me on this after years of gathering scars to prove how misleading noise can be, I have taught this crazy little technique to many people who all swear by using this “filter” to keep themselves out of trouble.

Trade risk

Over the years I have heard many people talk about the secret to trading noisy markets is to use wider stops – to keep the stops outside of the bandwidth of the noise. Sounds logical right?

Wrong! Absolutely dead flat out wrong! Try it if you like, but in practice you will find that for the very occasional trade that you might get away with without getting stopped out there will be ten that still stop you out just for larger amounts than usual!

The big mistake in the wider stop approach is that it assumes a degree of predictability to the noise and hence the argument that you can keep stops out of reach by assessing the bandwidth of the noise. But by definition noise is UNPREDICTABLE that is why it is just random motion.

So my solution, contrary to popular opinion, is to do quite the opposite. I use stops that are much tighter than normal. I give the market about half as much room to perform as I normally would.

You might be thinking “Simon that’s crazy, you are putting you stop right in the thick of the noise so it is certain to get hit!” Yes you are right, but only if your premise is based upon the need to stay outside the bandwidth of the noise. But that is where you and I would have to disagree. My premise has nothing to do with the bandwidth of the noise, I think that is a classic red herring.

My premise is quite different – If the trade is going to work it needs to work immediately. It isn’t going to hang around. Either it does what I expect and just goes, or else I don’t want it! So in a noise environment I give any trade far less room and far less time to prove itself. Because if it hangs around – then isn’t it true that we are still just in noise and the opportunity is in fact bogus?

If it is bogus why do I want to risk a full unit to find that out, let alone a larger unit than normal? Sorry but for me if it doesn’t do what I expect immediately I just want to get out for a tiny cost and be able to say I tried but it didn’t work.

Patience

The hardest part of my formula and the hardest part of all trading is having the patience to wait until a worthwhile opportunity materialises. Gaining the skill of patience is hard work, no question about it. But let me give you a couple of little incentives to think about when you are feeling the urge to click that mouse.

If you follow the guidelines above, i.e. cutting by at least half (if not more) the number of trades per day and the risk per trade, you reduce your daily risk by at least 75%, probably a lot more. Realistically your worst case risk per week in this dangerous environment is now no more than you would be risking per day in a decent environment.

This buys you time to ride out the rough patch without doing much too damage to your capital and this is before we even talk about the option of cutting back trade size (a topic maybe for another time).

Buying time and keeping losses under control is critical for the following reason, aside from keeping your sanity…

When it all changes and comes good again, would you prefer to spend most of the good time making up some dirty great drawdown which was largely avoidable, or would you prefer those new profits to be propelling your equity curve to new highs almost from the start?

I have done both, many times, in my career and I know which one I prefer. So when I look at my short term trading results over the last few weeks and say to myself “damn it we haven’t made any progress recently” I quickly remind myself “yes but we are only a couple of decent trades off of equity highs and THAT matters!”

These are the factors I think about more and more and as you engrain such principles deeper into your mind, the easier it becomes to summon up the patience that every single trader on the planet struggles to have.

Better times are coming

 As I mentioned at the beginning we will see better times again soon. Quite when is anyone’s guess.

Every time we hit these patches it feels like “this time is different it will never improve”. Yet over history it always has. Every time we see these nasty markets there is a reason why it may never recover. Every time it does.

There is no getting away from the fact that we live in uncharted times in very many different respects and there is every reason to argue that “it will never be the same again”.

Personally I believe that it will be the same again at some time, but that even if it wasn’t I would still find a way to align myself to the markets to make steps forward once again. Half that battle is avoiding taking too many steps backwards during the tough times.

I suspect the timing of the pick up will be a lot to do with the turn down in equity markets. Historically that is when volume and volatility come flooding back into not just index futures but so many other markets too.

Of course when that will be I also have no idea. It will be when it will be and when it does ranges should expand again, volume should return again and those who have followed the guidelines above will be pushing new equity highs within the first few trades.

For what its worth our longer term model is now short the S&P from the 1350 area, which may offer a glimmer of hope but there is no knowing in advance if the trade will work out or not and if it does there is no saying that this will be any sort of turning point. But it just might be the first sign that the tide is turning as we haven’t had a short signal for a very long time now.

My great friend George Kleinman taught his “secret indicator” at our seminar last summer. If you were there you might like to take a look at the daily Nasdaq chart, which is rather tantalisingly also showing a short signal there.

Will either trade turn into anything more than a scalp? Who knows, certainly not me. It’s just my job to take the trades and the market gives us what it gives us. But one day the trend will change and my guess is that will be the time that the short term trading game will come back to life once again.

Take care of your capital, try not to be too frustrated and have faith that things will get better. We’ll all ride out this storm together.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2012, all rights reserved

So I agreed to write an article explaining all of the ins and outs of a subject which is more important than many traders realise. Here it is, the answer, the formula and the logic underlying it…

The premise

We can’t physically trade every hour that the markets are open, so we need to decide how much of the available market time we are actually going to trade. We also shouldn’t want to trade every available hour. Aside from being intensive work that is tiring, the reason we are in this business is to provide flexibility for a better work / life balance. It is all too easy to lose sight of that fact!

So we need to set a plan that suits our personal needs as well as having us concentrate on the most productive trading days as far as possible, or at least those days that are most likely to be the best trading days over the long run.

My answer

First I will give you my own answer to this riddle and then work back through how this is arrived at. My conclusion is to trade no more than 12 days per month and no fewer than 8. These days must be selected and planned well in advance and not just drifted into based on how you feel when you wake up each morning!

That is why I know my trading schedule months in advance. I then stick to that schedule with cast iron discipline. There is no point having a well thought out plan if you don’t then stick to it, is there? The only deviations, which are extremely rare, are due to unexpected events.

As an example, here is my own schedule…click here

The formula

There are three items that go into this formula each of which results in eliminating certain days from the annual calendar and what we are left with is our personal trading schedule for the year. The three items that lead to days being eliminated are as follows:

• The days of the year that are least likely to be productive in general
• The days which statistically are less reliable for our own trading strategy
• The need to take regular breaks from trading, to rest as well as to enjoy life

Step 1

So first we eliminate the days each year when the odds do not favour success, or at best when profits can be expected to be below average making these days poor use of our valuable time. These tend to be days when we know ahead of time that volume is likely to be light. This is the list I like to use:

• The day of and the day preceding: Martin Luther King Day, Presidents Day, Memorial Day, Labor Day.
• The day of: Good Friday, Easter Monday, Columbus Day, Veterans Day.
• The day of and the day after: Independence Day.
• The day of, the day preceding and the day after: Thanksgiving.
• The whole period between and including Christmas Eve and New Years Day.

Step 2

The second step is to examine our own trading strategy to see if there are any statistical tendencies that we should be aware of and hence respond to. Some years ago I analysed no less than 5 years worth of short-term trading results to look for clues, somewhere of the order of 1000 days of data. I discovered something interesting.

When I broke the profit over the 5 years down by days of the week I found that profits were distributed approximately as follows:

• Monday -10%
• Tuesday +35%
• Wednesday +30%
• Thursday +30%
• Friday +15%

There is some powerful ammunition here. Until I did the analysis I had no idea that Monday’s were so bad. There were plenty of great Monday’s in the sample, clearly enough of them to disguise the long-term reality from me! Guess what – I never trade on Monday’s today and haven’t done for several years!

Friday’s are still profitable, but far less productive in terms of “earnings per hour” than the remaining three days of the week. Therefore as a general rule I tend not to trade on Fridays either. This is not as absolute as my hatred of Monday’s and I do trade a few Fridays each year – usually the first Friday of the month (Payrolls Friday). Fridays for me are used primarily to backfill my calendar to ensure I am able to trade enough days during months that are shortened by other factors.

Interestingly Mondays and Fridays also tend to be the lower volume days of the week, hence the findings here were consistent with the same logic for eliminating the set of days in Step 1.

Step 3

The final factor to consider is the need to take regular short breaks from trading. Quite apart from the importance of having a family life outside of the very intensive career we choose, it is extremely important to switch off, relax and recharge the batteries at regular intervals. Trading is extraordinarily tiring compared to any other occupation that involves sitting at a desk, staring at computer screens and swearing at them occasionally!

If you don’t get regular rest from this you slowly but surely lose your effectiveness. You can prove this to yourself by literally taking a week off and seeing how much more alert and attentive you are on your first day back. So this isn’t being lazy. This is a critical element in a long term and successful trading career. Yet you would be surprised how many traders try desperately hard NOT to take time off! We are brought up to believe that the harder we work, the better we will succeed. Well in my experience quite the opposite is true when it comes to trading. You need a razor sharp mind, absolute concentration and unshakable discipline – all things that start to be eroded as you tire from working too many days without a decent rest.

So my personal recommendation is to take off a good 7 to 10 days at least once per quarter, but ideally more like every other month.

Discipline

This formula is simple enough, logical and makes sense. But another value to having a schedule to work to is that it brings another element of discipline into your work. Unlike following a trading plan, avoiding over trading etc. this is a discipline that is much easier to stick too. Discipline in everything improves the more you are able to be disciplined in a few things. It becomes more of a habit and slowly becomes easier to be more disciplined in general. So it is constructive to have a few plans to follow that are easy! Working to a well thought out schedule each year is a simple plan to follow as well as having real value in improving trading performance.

Is my plan the right one for you? Maybe, maybe not. If you like the logic and it sits well with your view of life and your personal circumstances, by all means copy it. If not modify it to better suit your own needs. But I do urge every trader to have his or her own plan and to follow it. This is a serious business and the days you choose to trade deserve more thought than just how you feel each morning when the alarm clock goes off!

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2012, all rights reserved

But I have heard a few horror stories.  So if you generally held it together during 2011 then I think you deserve a pat on the back.  Anything around breakeven on the year seems like a good outcome and certainly nothing to feel ashamed about.

Throw in the fiasco of the MF Global collapse and its immediate dampening effect on the markets and you actually complete the picture of a pretty ugly year all around.

The highlight

For me the highlight of the year was the Century of Trading seminar with my great friends George Kleinman and Jeff Quinto.  We had a blast in Santa Monica and met such a great group of traders, many of whom have become good friends since the summer event.

You know, more than 9 out of every 10 people who attended have written saying how much they enjoyed and valued what was a very intensive learning experience.  That is so rewarding for us to hear and makes all the hard work worthwhile.  Who knows one day we might do another one, or maybe release the videos as a home study course.  That is something for us to think about for 2012 anyway.

2012 will be a great year

I can just feel it!  2011 was sufficiently challenging that the cycle is overdue for change this year.  When precisely that will be I don’t know, but I feel sure that 12 months from now we will be looking back on a really worthwhile year.

Fortunately we are entering 2012 from a solid position, despite the year just gone.  Our daily swing trading strategy (S-I-R) is sitting here right at equity highs and the 5min strategy in the Trading Den is also right at equity highs.  So not having a lot of ground to make up means we are in great shape to tackle the exciting year ahead.

But as I always say at this time of year – it doesn’t matter what happened last year, whether you were up, down or flat on the year, its time to wipe the slate clean and start all over again!  Bank the profits if you made them.  Forget the losses if you took them.  Zero the clock and focus exclusively on leaving the starting line as constructively as you can.  Which also means with a completely clear head and maximum discipline (New Year resolution perhaps?)

Projects for 2012

Every year I set myself the objective of tackling a number of projects.  Every year I also overestimate my ability to do everything planned by a factor of 2 at least!  Let’s see if this year I can get closer to delivering everything I hope to.

I plan to build upon our 3 out of 3 profitable years of running signal services by improving the existing services further as well as introducing 1, maybe even 2, new ones.  These have proven to be great in helping traders through the inevitably long apprenticeship that trading success demands.  I can’t make every member take every trade and similarly I make mistakes in my own execution at times just like everyone else.  But having a consistently profitable strategy to start with is a critical foundation and this has really proved it can give many people the staying power that they otherwise might not have had.

More and more people ask me for training courses and/or simple strategies that they can learn and become experts in themselves.  So in 2012 I will undertake to make more educational materials available than in the past.  There are several suitable things in R&D at the moment that I know have the potential to help people improve their game significantly.  So this will have more of my focus this year than in the past.

Finally this newsletter and several websites are due for a facelift and revamp which I think I can just about squeeze in too!  I have loads of insights to share with you this year and you can expect articles to start flowing again more regularly in a couple of months time.

I am currently buried under a pile of admin, accounting system changes and a significant change of business model in the way I manage money for other people at the moment, hence more radio silence then usual in the last few weeks!  This is my current priority and once it is all out for way I can set to work on some of these other projects for other people.

Let’s get cracking

So those are my plans for the year, what are yours?  Have you made your own plans and set your own goals?  Trading is a hard enough business when you have clearly thought out plans.  Without a plan to follow and to hold yourself accountable against is like trying to cross a busy road blindfolded.  So make sure you know what you intend to achieve in 2012 and you’ll have a far greater chance of actually achieving it.

It’s going to be a great year for many people.  I intend to be one of them and I hope you do too.  So what are we waiting for?  Let’s get cracking!

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2012, all rights reserved

Well sort of anyway. I can’t help myself from mentioning that in the same week that Nattie traded 3140, a whopping 80% decline from its 2005 peak of 15780, it was reported on the BBC news that this year alone the ever fleeced British consumer experienced a rise in energy bills of a staggering 25.4%. So much for free markets levelling the global playing fields!

Oh well at least the powers that be tell us there is no inflation to worry about, so I am sure we should behave as the reliable unquestioning citizens that we are expected to be and believe all of this utter rubbish.

But hey ho, I promised not to get on my soapbox today, so let’s turn to something a little more positive. I was joking with friends yesterday about how they will be giving away natural gas with cornflakes before long it is so darn cheap. Funnily enough that might almost be the case soon.

How about an unlimited supply of cheap, carbon neutral Natural Gas! Sounds impossible right?

Well think again. Like Steve Austin you will be relieved to know that we have the technology! Better still it is under construction right now. Natural Gas produced out of thin air that does not fill the environment with CO2. What a wild idea.

Here is a very short article I read this morning about powering cars and homes with this cheap, clean, energy.

Click here to download the PDF

Pretty cool stuff I am sure you would agree.

Of course by the time the poor old consumer has access to it, you can be sure it will be much more expensive. As domestic gas supplies continue to demonstrate there is no correlation at all between what we are charged and the true wholesale prices that prevail.

However unlike “Natural Natural Gas” this stuff looks to be available in virtually unlimited supply, so may well be a key component in powering our homes and cars as the impending energy crisis starts to materialise.

About 10 years ago I did drive an LPG car and as a confirmed petrol head I can say that it isn’t as good as the real stuff, but much closer to it than electric is. I am also sure that the technological improvements since then will have been very considerable. So my guess would be that in 2013 when these cars arrive, they will be pretty impressive. We’ll find out soon won’t we!

For the avoidance doubt…Thank you Audi for the use of your article and for letting me share it with my friends.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2011, all rights reserved

I am intrigued, as well as suspicious, at the lengths that “someone” is going to to suppress this news outside of the USA. How can the 5th (?) largest bankruptcy ever simply not make the news here in England? Yet someone in Sussex has lost a cat and that’s newsworthy? Hmmm.

Half the locals are currently out of business with their working capital frozen and we have all witnessed the collapse in liquidity this month. You can’t take out the biggest player in an industry and expect life to carry on as normal. The American futures industry is basically mothballed until those MFG funds are released and even then there will be no “getting back to normal”.  This industry is fundamentally changed by this sorry affair.

Short term market risks

Personally I think the stakes here are far higher than most people realise. I doubt that anyone with accounts at MFG will lose a single cent at the end of the day. However if this takes more than a few more days for the funds to be released back into play in the markets, the potential exists for a massive collapse in the markets in my opinion.

The issue here is not the frozen money. That will sort itself out at the end of the day. The real issue is the principle of segregated funds being sacrosanct including, in particular, the BELIEF that they are so. The whole industry has segregated funds as its bedrock. If the CME drags its heels any further in sorting this out it is gambling not just with viability of the American futures industry but also the stock market and many other markets too.

The slightest hint that segregated funds might not be 100% secure could have the effect on the markets be like a pin meeting a balloon. In 2008 we experienced a run on several banks as scared investors pulled their money out. Imagine that same fear being applied not just to a few banks but to financial markets worldwide! Anyone with a segregated account containing stocks, bonds, commodities, currencies could simply say “to hell with this I’m cashing out!”.

Even spread betting accounts here in England are segregated these days and as far as I can see are the cornerstone of pretty well all investment accounts.

The CME had better be smart enough to realise that they are playing a game of chicken here not just with its own little world but also with pretty well every financial industry you can think of. Hmmmm could that be why this news is being suppressed so heavily? Well in the internet age you can only sit on these things for a limited time. Once it gets out and if it takes hold, be afraid, be very afraid.  Man itself is irrelevant.  But as a catalyst its potential is enormous.

The money temporarily locked up in MFG isn’t the issue at all. As usual the majority are looking in the wrong direction. If word gets out to the big wide world from this very small circle that we traders all move in, then batten down the hatches.

Longer term implications

So what about the future, after this sorry mess has actually been resolved?  My guess is that in years to come we will all be looking back at this event as the time that everything all changed.  How big, how fast and how far reaching these changes will be is anyone’s guess. If I was to take my best guess then the longer term implications I can envisage would include these…

• The loss of many brokerage firms who previously relied upon Man for clearing services.  Every day these businesses continue to pay their staff and other overheads while their clients are unable to trade.  Existing clients are unlikely to refund new accounts and the firms will struggle to find new clients.  Every day that the CME fools around rather than just ponying up as it inevitably will have to, is a day closer to the end of the road for otherwise perfectly innocent firms stuck in the middle of this mess.
• The industry will have to get used to the idea that clients will no longer deposit cash with clearing firms who will have to accept unmargined accounts secured via complex structures allowing clients money to be safely housed in banks that the brokers cannot touch.  In future the only cash that will pass through the hands of brokers will be amounts representing daily profits and losses sufficient to return the account balances back to zero again.  Those who will benefit from this fiasco will be those firms who are first to roll out such mechanisms, already used by small numbers of more highly valued clients, to their whole client base.  Those who are slow to adopt such mechanisms will rapidly go out of business.
• A mass exodus of volume away from the fundamentally broken, and never again to be trusted, American futures industry.  The European exchanges are the ones likely to hoover up all of this business by developing a more progressive regulatory regime while also providing better proximity to the emerging markets, making them the obvious next step for the global centre of the industry in its natural progression from west to east.  I would be very surprised indeed if European exchanges are not already planning mass marketing campaigns and big incentive schemes for next year, ready to take on the wounded beast that the CME will shortly be revealed to be.  And let’s not forget that exchange fees in Europe are already a fraction of the extortionate rates charged by American exchanges, plus contract sizes are also much bigger.  So putting together very enticing schemes to lure away that volume will neither be difficult nor costly!
• A loss of the hitherto distinct Asian, European and American trading sessions as a more normalised genuine 24 hour market evolves to cater for all timezones from a more natural geographic centre in Europe.
• Lots of new and exciting products to compliment the existing deep, but limited range of markets available in Europe, with lots of volume from very early on in the new products’ life.
• Ultimately the migration of large numbers of traders from the United States to Asia and the Far East, where they can enjoy substantial tax benefits as well as trading whichever of the old timezones that best suits their lifestyles and still operating accounts within the safety of the European regime as it evolves.

Is that all bad?

Absolutely not!  There certainly will be short term pain, do doubt about that.  But I believe that the short term inconvenience that we are all being put through will soon be surpassed by the benefits of the improvements that will come about as an antiquated industry wakes up and gets dragged into the 21st century triggered by this catalyst that is the Man Financial mess.

Will any of my hypothesis come into being?  I have absolutely no idea.  But I am sure that 2012 will prove to be a major pivotal moment in the history of this industry.  I also believe that whoever it is that is, so far, being effective in burying this major news, knows it too.  Well the lid won’t be kept on for very much longer, there is no going back to business as usual, so the next question is what the short term fall out is going to look like before the phoenix arises from the ashes.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2011, all rights reserved

We all know the Chinese proverb and we all know it to be true. But what if it takes a year to learn to fish? Or 3 years, or 5 years?

That’s the chink in the armour and the reality is that learning to trade successfully takes that sort of time. It’s not like a quick fishing lesson and hey presto you can feed yourself, despite what all of those classified ads would have us believe!

As a result so many would be and could be traders never quite make it. Before they reach the point where they can feed themselves, they run out of time or run out of money (sometimes both!).

The solution is simple of course – feed that man a fish each day until he develops into a competent fisherman!

Then time ceases to be his enemy. He can take as much time as he needs to learn to be not just any old fisherman but a fishing expert.

The Trading Den

For about 3 years people have been asking me to put together a service providing low risk, short term trades using my highly profitable, time proven strategy. Well now I can reveal that over the last year I have secretly been running such a service, quietly providing a fish a day to a dozen other traders.

Interestingly all of these great people are professionals, mainly career traders, successful in their own rights. They are already fishermen and fisherwomen (is that a real word or one I just invented?). But they have been enjoying the Trading Den trades in addition to their own trading as a means of boosting profits without increasing leverage. So even though the idea is to feed a man a fish to buy the time needed to become an expert fisherman, that doesn’t mean it can’t also benefit veterans seeking to increase their earnings without increasing risk!

During this year we have honed this service to the point it is now running like a Swiss timepiece. It is about as good now as we can ever hope to make it. So now I am ready to invite up to 10 newcomers into this secret little club to join us in landing typically around $7,000 per month trading only half time and with no overnight risk.

If that sounds like it would help you in your own trading evolution, novice or veteran, 1-lot trader or 10-lot trader, then you can read the whole story at…

www.TradingDen.net

What John thinks about it…

“I have been a member of Simon’s Trading Den since the inception and have witnessed first-hand, on a daily basis, Simon’s keen abilities trading the futures markets. The posted results are genuine, as is Simon himself. Finding someone with Simon’s skills and integrity in the trading arena is like finding a needle in a haystack, and I consider myself very fortunate indeed to have met him and to be trading with him.

Besides the trading profits, the other big benefit to the Trading Den is being able to watch Simon enter, manage and exit trades live. Every day trading in the Den is an enjoyable learning experience that adds greatly to my own trading skills.”

John, San Francisco

You can meet John and the rest of gang, in my private Trading Den this week. All you need to do is to read about the service, make sure it fits within your current trading portfolio and grab one of these 10 new seats. We look forward to seeing you next time we convene in the Den to wage war on the markets once again!

www.TradingDen.net

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2011, all rights reserved

For two and half years now I have been trading a strategy that has also been made available to a tiny group of professional traders. Many of these people have made big money in this time, where big means 6-figures for some of them – in addition to their own trading returns.

However, this has one particular limitation and that is the fact that the signals are taken off daily charts and actioned in the most part at the end of the day. This was deliberate as it made it ideal for more passive traders and investors who had lives outside of trading and who did not want to follow the markets during the day.

But daily charts by definition mean a relatively small number of trades and relatively large initial risk per trade. This is perfect for those more “passive types” but during this 2-3 year period many more active traders have asked me…

“Isn’t there a way to trade this intra-day, off smaller charts, with lower risk trades?”

There wasn’t.

A moment of madness!

But more and more people asked which got me thinking. Then one day, in the summer of 2010, I woke up one morning and decided to do something completely crazy. I decided to start trading the same strategy intra-day off much smaller charts.

What’s crazy about that you might ask? Well nothing in principle. The bit that was a bit off the wall was doing the whole thing before a live audience!

Yeah that’s right, no quiet development in the basement late at night. Just straight in at the deep end in the live market with my most loyal and closest clients watching every damn trade in real time!

OK, lets be honest, I didn’t take that leap of faith without a pretty good idea that it would work. But it wasn’t perfect. It took a bit of refining and developing as we went along.

A little help from my friends?

We have been quietly trundling along making about $7,000 a month with this. Then last month with the help of some of the gang also watching out for the sort of things I look for on my charts, we increased our number of trades and our profit on the month exploded to $15,248!

I should point out that we are not scalping for a handful of ticks here and there, but seeking 2 to 3 high probability trades per day each worth a decent chunk of cash. Oh and we only trade 2 to 3 days per week too, so this is about as low key laid back day trading as you can find!

Well a year down the road, with a tidy old profit under our belts and having really found the groove in our weekly activities, I have decided to admit just 10 new members to this exclusive group. This is the chance for those who have been asking for such a service to finally receive exactly what they have been looking for.

Work is underway finalizing everything and I hope to release those 10 new spaces in early October. So if this sounds like your kinda thing, watch this space and I’ll let you know the moment those places become available.

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2011, all rights reserved

The stock market was potentially in big trouble from the day they caught bin Laden.

No I’m not joking here, I’m actually being very serious.  For over a decade now it has been accepted wisdom that the most bullish news that could hit the market would be catching the worlds most wanted man.

“The day THAT happens the market will just explode north and never look back.”  I cant remember how many times I have heard those or similar words, since the atrocities of 9/11.  And lets face it 9/11 did have quite the opposite effect, sending markets spiraling into the abyss.

So on Monday May 2nd we hear the news that conventional thinking said would trigger this rocket in equity values.  We buckle up ready for the ride and watch with amazement as…

Nothing happens!

True the market was up briefly for a few hours that Monday morning before it closed down on the day.

So the next day, on Tuesday, there I am asking the traders in my group…”Where is the Osama rally then?”  No one knew.

With hindsight this was the short signal of the year.  But sadly we cant trade hindsight, even though bizarrely from that Tuesday onwards we had all been openly talking about the “Osama Top”.

Well now we can see from the chart above that the capture of bin Laden nailed the top in the stock market to the absolute very day.  How stupid not to have just shorted it right there and then.  Why didn’t we?

Well because we didn’t actually have a sell signal from our normal trading strategy and we are always fighting to follow our rules.  That is true but also makes good cover for the other truth that secretly we were scared that the “rally of a lifetime” might just come about as all the experts had foretold for the prior ten years!

There can be no doubt that this was one heck of a missed opportunity.  If I am honest we should have been bold and just stepped right in when the market failed to rally.  No we didn’t have a sell signal in the normal sense.  But we did have the biggest tip-off of all…

The fact that a market failed to rally in the face of the most bullish news it could possibly have received.

Now THAT is a sign of a market in serious trouble.  Failing to respond positively when it had every reason to do so spelled the end of this cycle’s irrational exuberance!

This recent sell off didn’t just appear out of nowhere a month ago.  It is purely a continuation of the new trend that started the day the market signaled that the bull market was done for, by failing to gain any ground at all when it should have exploded.

The market was telling us that the game was over.  We just weren’t smart enough listen.  Or to be precise we were smart enough to listen, which is why 24 hours later we were already talking about the Osama Top.  But we weren’t smart enough, on this occasion, to react to what the market was telling us.  This was an expensive mistake, even though we were following our trading rules by not taking any action.

The moral of the story therefore is simple…

A market that fails to rally in the face of exceptionally bullish news, is in serious trouble and has run out of steam.  A market that fails to fall on exceptionally bad news, is in fact very strong and is likely to be turning up very soon.  This strength or weakness is hidden from view but the LACK of reacting in the way it really should be in extreme circumstances is without doubt a genuine tipoff about what is about to take place.

Remember though a missed opportunity is only a missed opportunity if we fail to profit from it OR fail to learn from it.  In this case we’ll treat this as an educational expense rather than a disaster!

Disclaimer, risk warning and copyright notice apply to all articles published on this site.

Copyright © Simon Townshend Ltd 2011, all rights reserved