Seasonal Spread Trade for Consistent Returns

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Seasonal Spread Trade for Consistent Returns

Spread trading is a unique trading concept not all that familiar to the average commodity investor. The typical commodity trader analyzes a particular market, either from a technical or a fundamental standpoint, sometimes combining the two; makes a determination as to whether the market exhibits either a bullish or bearish bias, and then wagers by going long a futures contract or purchasing a call option, or by going short a futures contract or buying a put option. There are a number of variations on the theme, but the idea is basically the same.

The following demonstrates the inherent disadvantages, in the above two scenarios, of an outright futures position or the purchase of an option;

1. Size of account. The average investor has a limited account size, and can only withstand a certain amount of drawdown associated with any particular trade. The limited size of trading account necessitates the placement of a protective stop order above or below the position. The premature assumption of a position and the inherent volatility associated with commodity markets leaves the position vulnerable to a one or two day move that triggers the stop order, sidelining the trader as the position oftentimes turns back around. As the market moves in the trader’s favor, the advisability of using trailing stops, adjusting the protective stop in the direction of the trade makes sense in theory, but oftentimes the market will open well above or below the stop order, blowing out the stop and oftentimes taking away a substantial amount, if not all of the profit that was being locked in.

2. Time. In the case of an options purchase, you are basically purchasing time. As the purchaser of an option, the time clock and the calendar become your worst enemy. The value of your option depreciates as you wait for the market to move in your direction. Typically the purchaser of an option witnesses the market go up and down, as the value of his option changes, all along the remaining time value decaying on an accelerated curve as the option expiration day grows nearer.

Spread trading on the other hand, is a way of effectively combating the above two problems. Time no longer is an enemy and volatility, to a certain extent, is effectively reduced. Margins are substantially less due to the relative conservative nature of the “hedged” trade, which the commodity exchanges themselves recognize. Margin requirements, for a spread, can be reduced anywhere from 20% to 90%

Spread trading has no directional bias. The market can go up or down, the trade is based only the relationship between the long and the short position, i.e.- as long as the long side of your spread outperforms the short side you will be profitable. Spread trades can be in the same commodity with different delivery months (i.e. buy July Lean Hogs and sell December Lean Hogs), or different commodities (i.e. buy March Swiss Franc and sell March Australian Dollar). Generally speaking, both sides of the trade will have the same overall directional bias, as in being both long and short in the Grains (long July Corn/short March Corn) , or in the Meats (long Live Cattle/short Feeder Cattle), or in the Metals (long Gold/short Silver). This allows for the built in “hedge”.

Seasonal spread trading is another opportunity to take advantage of this manner of trading. As there are many seasonal tendencies associated with various commodity markets, there are also seasonal tendencies associated with seasonal spread trades. Seasonality is a seasonal cycle that forms a similar, reliable pattern every year for many years.

Reliable seasonal tendencies are all around us.

Everyone is familiar with weather seasonality. In the winter months the temperature is colder than in the summer months.

Farmers will plant crops and harvest crops at about the same time every year.

In the summer months, Crude Oil is usually higher than in winter (because people drive cars more in summer).

In the winter months heating oil is usually higher than in the summer (because more people are trying to stay warm in winter).

At TransWorld Futures, www.TransWorldFutures.com, we go back over 15 years of research and analyze high percentage seasonal spread trade patterns. If a commodity doesn’t exhibit a high seasonal correlation, it is tossed out of the data base.

Any spread trade that has been successful 80% of the time or better over the past 15 years is certainly a possible candidate for exhibiting a seasonal tendency and worth analyzing further. Once the high percentage entry and exit dates are determined, it is time to examine the trade on the technical setup. Is the spread overbought or oversold, what are the resistance points? Basically does the trade look technically as well as fundamentally sound. There are a number of advisory services that offer seasonal spread trade recommendations based on historical analysis, but, by ignoring the technical set up, may result in entering the trade too early, resulting in unnecessarily large draw downs, or in entering too late, missing the trade altogether. We attempt to alleviate the stress, and do the leg work for you. The results from this unique form of trading have to be seen to be believed. Please contact one of our friendly brokers today, and learn about one of the most consistent trade indicators.

Rob Rutger

Senior Analyst

TransWorld Futures

Rob@TransWorldFutures.com

Toll free: 1-877-843-4519

International: 011-813-241-1902

Fax: 1-813-241-1927

www.TransWorldFutures.com

Robert Rutger
http://www.articlesbase.com/investing-articles/seasonal-spread-trade-for-consistent-returns-101941.html

Technical Basis of Penny Stocks

Through trading I have learns many different ways to trade. The topic I will focus on is trading penny stocks with the technical aspect. Here are 10 things to help you in making trading decisions on a technical basis.

Background Information – Check the major averages and market sector. It is important to also look at the technical picture for the average(s) of which it is part–if available, and examine the market sector chart.

Look at all time frames – Daily, weekly, monthly and beyond. Study longer term charts, volume, and indicator patterns before making any decisions based on the daily charts. Look at the daily chart and indicators, if trading on an intraday basis.

Trend Considerations – Examining whether there is a trending or consolidation pattern apparent on the char. Basically, this is always having an eye as to whether the market is trending up or down, versus being in a sideways consolidation or trading range. If in a trading range, is it well-defined, wideranging or relatively narrow, and how long has it gone on? For example, is its duration as long as the prior trend in terms of weeks and months? When a consolidation has gone on as long or longer than a prior price movement of a similar nature, be alert for any trend change.

Overbought/oversold considerations – Long and short-term. As a further technical backdrop, it is recommended to be aware from day to day or week to week, of the relative position of price momentum oscillators like RSI and MACD for daily, weekly, and monthly timeframes. Be aware if the market or stock is approaching an overbought or oversold extreme, whether momentum up or down has been strong, or has slowed significantly. If an extreme reading is at hand or if momentum measured by these indicators has stalled, then it’s imporant to follow the price and volume patterns closely for signs of a reversal, while keeping in mind that there are many consolidations along the way in a trend. A sideways trend bears watching in terms of protecting existing profits if the high of the price range already got near price objectives. It may be time to take profits or raise protective stops.

Predictive Patterns – Price and volume. Make a determination of what patterns, if any, are developing, such as rectangles, flags, triangles, double bottoms, double tops, and so on with a possible measurement of an associated minimum upside objective. Volume is something to look at along with price, to determine if the volume pattern is confirming price action or not.

Trendlines and price channels – Construction of any relevant trendlines and price channels is very basic to effective technical analysis and a study of the trend, even if you merely use a straight edge to make more of a mental check of where trendlines are forming or get pierced. While not an everyday occurrence, a return to a previously broken trendline often offers a second opportunity for a trade or investment entry.

Retracement calculations – For the markets and individual items you follow, calculations for any return or rebound of 38%, 50%, or 62% of a prior price swing is essential. A strong move that retraces more than 62% up to two thirds or 66%, often suggests that momentum will carry back to the prior high or low.

Moving Averages – It is suggested that you keep track of some of the basic and key moving averages, such as the 21, 50, and 200 day moving averages. These can help confirm other indicators regarding a current or upcoming trend.

Oscillators – Another frequent check is of the relative position of at least one of the popular oscillator-type indicators like RSI, slow stochastics, or MACD on both daily and weekly or monthly chart basis. This is more than just seeing if they are at an extreme (overbought or oversold), as oscillators are a basic indicator of price momentum. On daily charts, I especially keep track of the RSI indicators with a length calculation of either 13 or 14 and 21 days as well. On weekly charts check the MACD oscillator.

Divergences – One of the great values of the oscillators, and volume indicators as well, is to highlight points when they diverge from price action, such as failing to accompany prices to a new relative high. This type of divergence is much more crucial when the market has been trending for a long period and is, or has been for some time previously, registering an extreme. Such divergences are not by themselves indications to buy or sell, but alert you to a possible reversal. This situation should then cause you to check where key trendlines or moving averages would be violated. Surprise often is the enemy of quick market action, as there is initial disbelief in a reversal. Preparedness is important.

Article Written by Dave of Stockhideout.com Best Penny Stocks

rob rens
http://www.articlesbase.com/finance-articles/technical-basis-of-penny-stocks-97550.html

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Why Trade the Forex Market and Why is it Attracting So Many Participants?

The Forex market is vital to the general prosperity of the free world economy. Why? Some $1.5 trillion dollars worth of international currencies are bought and sold every single trading day. It is by far the largest traded market in the world. This volume of trade is equivalent to over six months of trading in the New York Stock Exchange, which has an average daily volume of $10 billion dollars.

Even though the major focus in this country in reference to investing has always been and still is the stock and equity markets, the Forex market is 150 times larger than the New York Stock Exchange. See the chart below for an illustration of the daily trading volume of the New York Stock Exchange, the US Bond market, and the Forex market.

As you can see the Forex market is by far the largest market in the world. Unfortunately from 1971 until very recent years the virtual owners of this market were the major banks, large brokerage firms, and multinational corporations.

Major banks, even the Federal Reserve (which most Americans are unaware is a privately owned bank owned by mega-wealthy international bankers) realize a large segment of their profits (sometimes as much as 40% or more) from trading currencies.

Up until recently if an individual wanted to trade currencies on the Forex market, the only way possible was to invest with a bank, which required not only a minimum of a one million dollar cash deposit, but this large deposit also had to be backed by a five to ten million dollar net worth.

As some time progressed a slightly better option was trading with a brokerage firm, which asked for a minimum deposit on average of a quarter million dollars. Then factor in the myriad of sophisticated communication and trading facilities necessary to trade, and this profitable market was unreachable to most individuals.

Accessibility

Fortunately for you and me, the Forex market has now been opened up to small-scale investors. Unlike the enormous amounts previously required by the banks and brokerage firms, comparatively far lower margin requirements are finally available, which now allows virtually any individual to trade this highly profitable market.

There are now many brokerage firms that specialize in trading currencies, which allow a minimum deposit that is much more reachable to most of us. In addition, the recent boom in computer and communication technologies has made this market accessible in ways previously exclusive only to large players. Thanks to the Internet, electronic trading is now possible for anyone with a computer and access to the internet to trade currencies.

Liquidity

There are many reasons that investors are being attracted in large numbers to the Forex market. One major reason is liquidity. This market can absorb trading volumes and per trade sizes that dwarf the capacity of any other market. On the simplest level, liquidity is always a major attraction to any investor as it allows one the freedom to open or close a position at will.

Another desirable aspect of Forex is when day trading currencies your trading account is always liquid. At the end of each day trading your account is liquid cash, totally accessible, unlike stocks and mutual funds, which normally tie up your capital for months at a time.

High Profit Potential and Predictability

Years ago, like stocks, futures markets generally moved slowly and steadily toward price points (up or down). However, since about the early 1980’s virtually all currency markets have become increasingly volatile, and the time required for the same price movement has become considerably shorter. Now, with long-term speculation with stocks or equities becoming increasingly risky, trading Forex and taking advantage of its clear and predictable price trends is becoming increasingly popular.

Many investors are choosing to focus their energy on the currency markets simply because they offer the greatest predictable daily price movements, with the least risk. While professional fund managers at major banks may behave independently and view the market from a unique perspective, most, if not all, are at least aware of important technical chart points in each major currency.

As these important levels approach, the behavior of the market becomes more technically oriented and the reactions of many managers are often predictable and similar, thus market movements at these important technical levels can be predicted through simple technical analysis. These market periods may result in large price swings as substantial amounts of capital are invested in similar positions.

Furthermore, thanks to the computer revolution, home computers have become increasingly more powerful and affordable. This power, coupled with the ease of Internet access has afforded the most casual of investor the same real-time access to the market that the professional trader on the trading floor has available. If it weren’t for the instantaneous delivery of price information, and the ability of our computers to quickly analyze incoming information, day trading would not be possible.

Simplicity

Instead of attempting to choose a stock, bond or mutual fund from thousands available in the equity markets, the foreign exchange market deals primarily with just eight to ten different currencies. Along side the U.S. Dollar, four major currencies dominate the trading on the $1.5 Trillion dollars traded daily on the Forex markets. This is due by nature of their popularity, activity, volume, stability, and confidence.

Clear Trends

Any professional trader knows that trends are the essence of profitable trading, and knowing this makes the idea of trading currencies very attractive, because currencies are the worlds best trending markets! Many studies of trend following systems prove that currency trends are the most consistent and profitable!

Regardless of the type of trend following system used; long term, intermediate term or short term, currencies invariably outperform all other markets including stocks, bonds and other commodities. It should come as no surprise that some of the worlds’ most successful traders are currency traders.

Traders such as George Soros, Bill Lipschutz, and Bruce Kovner earn hundreds of millions of dollars per year trading currencies! It is a well-known fact in the world of currency trading that on one occasion the billionaire George Soros made in excess of one billion dollars in a day with a trade he executed on the British Pound/US Dollar.

One reason currencies trend better than every other market is because of their macro-economic nature. Unlike many commodities whose supply and demand fundamentals can literally change with the weather, currency fundamentals are much less random and far more predictable. In summary, currencies are one of the best all around markets, currencies represent the worlds’ largest marketplace, and have the most powerful and 10 persistent price trends, in other words, immense opportunities for profit.

In addition each individual currency offers it s own unique pattern of movements and trends, which provides investors diversification within the Forex market.

Martin Chandra
http://www.articlesbase.com/finance-articles/why-trade-the-forex-market-and-why-is-it-attracting-so-many-participants-81023.html

Forex Day Trading – Forex Trading Brokers

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What is the Best Business Opportunities

Did you know that more and more business opportunity seekers worldwide are discovering the powerful profit potential of Foreign Exchange trading? In this business, there are no employees to hire, no advertising, no products to stock, no downlines to fill — just you, an Internet connection and a computer.

That’s all you need to make money on the worlds largest market. If you are searching for an alternative to more traditional home-based business opportunities, then Forex trading may be what you’ve been looking for.

There are numerous advantages for parties wishing to trade in the forex. They include:

Liquidity: In the forex market there is always a buyer and a seller! The forex absorbs trading volumes and per trade sizes which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggests the freedom to open or close a position at will 24 hours a day.

Once purchased, many other high-return investments are difficult to sell at will. Forex traders never have to worry about being “stuck” in a position due to lack of market interest. In the 1.5 trillion U.S. dollar per day market, major international banks a “bid” (buying) and “ask” (selling) price.

Access: The forex is open 24 hours daily from about 6:00 P.M. Sunday to about 3:00 P.M. Friday. An individual trader can react to news when it breaks, rather than waiting for the opening bell of other markets when everyone else-has the same information. This allows traders to take positions before the news details are fully factored into the exchange rates.

High liquidity and 24 hour trading permit market participants to take positions or exit regardless of the hour. There are forex dealers in every time zone, in every major market center (Tokyo, Hong Kong, Sydney, Paris, London, United States, etc.) willing to continually quote buy and sell prices.

Since no money is left on the market “table,” this is what is referred to as a “Zero Sum Game” or “Zero-Sum Gain.” Providing the trader picks the right side, money can always be made.

Two-Way Market: Currencies are traded in pairs, for example dollar/yen, or dollar/Swiss franc. Every position involves the selling of one currency and the buying of another. If a trader believes the Swiss franc will appreciate against the dollar, the trader can sell dollars and buy francs (selling short!). If one holds the opposite belief, that trader can buy dollars and sell Swiss francs (buying long). The potential for profit exists because there is always movement in the exchange rates (prices).

Forex trading permits profit taking from both rising and falling currency values in relation to the dollar. In every currency trading transaction, one of the sides of the pair is always gaining and the other side is losing.

Leverage: Trading on the forex is done in currency “lots.” Each lot is approximately 100,000 U.S. dollars worth of a foreign currency. To trade on the forex market, a “margin account” must be established with a currency broker. This is, in effect, a bank account into which profits may be deposited and losses may be deducted. These deposits and deductions are made instantly upon exiting a position.

Brokers have differing margin account regulations, with many requiring a $1,000 deposit to “day-trade” a currency lot. Day-trading is entering and exiting positions during the same trading day. For longer-term positions, many require a $2,000 per lot deposit. In comparison to trading in stocks and other markets, which may require a 50% margin account, forex speculators excellent leverage of 1% to 2% of the $100,000 lot value. The trader can control each lot for I to 2 cents on the dollar!

Execution Quality: Because the forex is so liquid, most trades can be executed at the current market price. In all fast moving markets, slippage is inevitable in all trading (stocks, commodities, etc.), but can be avoided with some currency broker’s software, which informs you of your exact entering price just prior to execution. You are given the option of avoiding or accepting the slippage. The huge forex market liquidity offers the ability for high quality execution.

Confirmations of trades are immediate and the Internet trader has only to print a copy of the computer screen for a written record of all trading activities. Many individuals feel these features of Internet trading make it safer that using the telephone to trade. Respected firms such as Charles Schwab, Quick & Reilly and T.D. Waterhouse offer Internet trading.

They would not risk their reputations by offering Internet service if it were not reliable and safe. In the event of a temporary technical computer problem with the broker’s ordering system, the trader can telephone the broker 24 hours a day to immediately get in or out of a trade.

Internet brokers’ computer systems are protected by “firewalls” to keep account information from prying eyes. Account security is a broker’s highest concern. They have taken multiple steps to eliminate any risk associated with transacting on the Internet.

A forex Internet trader does not have to speak with a broker by telephone. The elimination of the middleman (broker salesman) forex expenses and makes the process of entering an order faster and has eliminated the possibility for misunderstanding.

Execution Costs: Unlike other markets, the forex does not charge commissions. The cost of a trade is represented in a Bid/Ask spread established by the broker. (Approximately 4 pips)

Trendiness: Over long and short historical periods, currencies have demonstrated substantial and identifiable trends. Each individual currency has its own “personality,” and each offers a unique historical pattern of trends, providing diversified trading opportunities within the spot forex market.

Focus: Instead of attempting to choose a stock, bond, mutual fund or commodity from the tens of thousands available in those markets, forex traders generally focus on I to 4 currencies. The most common and most liquid are the Japanese Yen, British Pound, Swiss Franc and the new Euro. Highly successful traders have always focused on a limited number of investment options. Beginning forex traders usually will focus on one currency and later incorporate one to three more into their trading activities.

Margin Accounts: Trading on the forex requires a margin account. You are committing to trade and take positions today. As a speculator trader you will not be taking delivery on your product that you are trading. As a Stock Day Trader, you will only hold a trading position for a few minutes to a few hours, and then you need to close out your position by the end of the trading session.

All orders must be placed through a broker. To trade stocks you will need a stockbroker and to trade currencies you will need a Forex currency broker. Most brokerage firms have different margin requirements. You need to ask them their margin requirements to trade stocks and currencies.

A margin account is nothing more than a performance bond. All traders need a margin account to trade. When you gain profits, they place your profits into your margin account the same day you profited. When you lose profits, they need an account to take out the losses you incurred that day. All accounts are settled daily.

A very important part of trading is, taking out some of your winnings or profits. When the time comes to take out your personal gains from your margin account, all you need to do is contact your broker and ask them to send you your requested dollar amount, and they will send you a check. They can also wire transfer your money.

But, before doing so, there are few things to remember. First, choose the right currency pair. Find out based on your risk parameters, which currency is best suited for your trading style. Some may be too volatile and some to slow so decide which currency pair is most appropriate for your strategy and time frame. You also have to ddecide on how long you plan to stay in a trade. If you are an inter day trader, what is the average time of your trade, few minutes, couple of hours a full day, swing trade (couple of days to a week).

Before you enter a trade you should also have clear exit plan. Place your stops and limits accordingly. Know how much you are willing to risk and how much you are looking to gain. Keep track of important news and technical levels, which may be tested within your time frame.

Martin Chandra
http://www.articlesbase.com/business-opportunities-articles/what-is-the-best-business-opportunities-84115.html

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Forex Day Trading – Forex Tip Trading

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Day Trading Education with the SchoolOfTrade.com

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