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Senior Market Analyst, TradingEducation.com, LLC
Jim Wyckoff, a senior market analyst for TradingEducation.com, has been involved with the stock, financial and futures markets for more than 20 years. He was a financial journalist with Futures World News for many years, cutting his teeth as a reporter on the futures trading floors in Chicago and New York, where he covered every futures market traded in the United States at one time or another. He continues to cover all markets with his daily commentaries and weekly newsletter. His extensive studies of technical analysis and knowledge of markets led to several positions, including chief technical analyst at several well-known companies. He says his mission is not just to generate profits for traders but to also provide them with educational and insightful information “because, in the fascinating business of trading, one never stops learning.” |
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Jim's Secrets |
Secret 1 |
Are shorter-term and longer-term charts in agreement on price trend? I've told readers for years that this is my No. 1 trading rule. If the weekly, monthly and daily (and sometimes intra-day) bar charts are not in agreement on price trend, I'll likely pass on a trade. I'm usually a trend trader, and the "trend must be my friend" before I make a trade. |
Secret 2 |
Is this potential trade within my financial risk tolerance? To be a successful trader, I not only have to have winning trades, but I must survive the more numerous losing trades I am likely to encounter. If I see a potentially profitable trading "set-up," but the market is too volatile, I'll likely pass on the trade because of the potential for a big drawdown or even a margin call from my broker. An example is the energy markets a couple years ago. They were highly volatile. Certainly, there were some big moves (and trading opportunities for some) in the energies--both up and down. However, when a 75-cent, or more, daily move in crude oil is a "routine" trading session, that market is too volatile for my risk tolerance--at least when trading straight futures. |
Secret 3 |
What is the potential risk-reward ratio of the trade? My risk-reward ratio in a futures trade should be at least three to one on maximum profit potential. In other words, if my risk of loss is $1,000, my maximum profit potential should be at least $3,000. Anything less is not worth making the trade. Now, any eventual profit that is made may not always attain that three-to-one risk-reward ratio, but the point here is there should be the "potential" for a profit three times greater than your capital at risk in the trade. |
Secret 4 |
Has there been a price "breakout" from a trading range? One of my favorite trading "set-ups" is when prices have been in a trading range--between key support and resistance levels--for an extended period of time (the longer, the better). This type of trading range is also called a congestion zone, or a basing area when at historically lower price levels. If the price breaks out of a range (above the key resistance or below the key support), I like to enter the market--long on an upside breakout or short on a downside breakout. A safer method would be to make sure there is follow-through strength or weakness the next trading session--in order to avoid a false breakout. The trade-off there is that I could be missing out on some of the price move by waiting an extra trading session. |
Secret 5 |
Is there a potentially good entry point if the trade looks good? Entry points in trades most times should be based on some type of support or resistance levels in a market. If I see a potential set-up for a long-side trade, I will wait for the market to push up through a resistance level and begin a fledgling uptrend. Then, if I do go long, I'll set my sell stop just below a support level that's not too far below the market. And if the trend does not develop and the market turns back south, I'm stopped out for a loss that's not too painful. Another way to enter a market that is trending (preferably just beginning to trend) is to wait for a minor pullback in an uptrend or an upside correction in a downtrend. Markets don't go straight up or straight down, and there are minor corrections in a trend that offer good entry points. The key is to try to determine if it is indeed just a correction and not the end of the trend. |
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Free Research
Darrell Jobman: Euro/US
Friday, May 16 200810:29:00 EST - The dollar weakened in early Europe on Thursday following the firmer than expected Euro-zone growth data.
The US currency was also unsettled by a renewed increase in oil and commodity prices. The US growth- ... more>
Jim Wyckoff: Energies
Friday, May 16 200810:29:00 EST - June crude oil closed down $0.10 at $124.12 a barrel yesterday.
Prices closed near mid-range in volatile trading. The bulls still have the strong overall near-term ... more>
Robert W. Colby: Growth Stocks and Utilities
Friday, May 16 200810:29:00 EST - Energy and Materials Stock Sectors both rose to a new all-time price highs, driving some, but not all, of the major stock price indexes to new 4-month highs.
Relatively low volume fails to confirm a new Bull Market. The weight of the evidence appears mixed. ... more>
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