Technical Analysis of Stocks & Commodities November 2014
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THE TRADERS’ MAGAZINE SINCE 1982 www.traders.com NOVEMBER 2014 THE SMART MONEY When they fail 10 PRICE PROJECTIONS With daily pivots and more 20 SWING TRADING When is a breakout really a breakout? 26 FOREX TRADING The basics 32 INTERVIEW Larry Levin, futures trading educator 36 THE EQUITY CURVE Arbiter of success 42 PRODUCT REVIEW n thinkorswim Sharing NOVEMBER 2014 DOWNLOAD A FREE FUTURES TOOLKIT Compliments of TradeStation If you’re looking for new trading ideas, we can help. In addition to our award-winning* multi-asset trading platform, TradeStation offers timely, insightful market research and analysis. Sample our educational offerings by downloading our free Futures Toolkit. This valuable learning tool shows how you can identify market turns and confirm trends by analyzing the breakdown of open interest for speculators and hedgers in the CFTC’s weekly Commitments of Traders report. Download today at TradeStation.com/FuturesToolkit or call 800.519.0809 for more information. * Rating based on Barron’s magazine 2014, a hands-on review of each company’s online brokerage products and services by a Barron’s journalist, in several categories, after which numerical scores are assigned per category and aggregated to determine overall numerical score and star rating. Barron’s is a registered trademark of Dow Jones. IMPORTANT INFORMATION: The Futures Toolkit is designed to demonstrate what we believe are the valuable benefits of using TradeStation. No investment or trading advice, recommendation or strategy regarding any security, group of securities, market segment or market is intended or shall be given. The purpose of any particular trading strategy, technique, method or approach discussed or demonstrated is solely to illustrate how TradeStation may be used, and we are in no way suggesting that it will guarantee profits, an increase in profits or the minimization of losses. All support, education and training services and materials are for informational purposes and to help customers learn more about how to use the power of TradeStation software and services and to help provide other customer support. No type of trading or investment recommendation, advice or strategy is being made, given or in any manner provided by TradeStation Securities, Inc., TradeStation Forex or their affiliates. No offer or solicitation to buy or sell securities, securities derivatives, futures products or off-exchange foreign currency (forex) transactions of any kind, or any type of trading or investment advice, recommendation or strategy, is made, given or in any manner endorsed by any TradeStation affiliate. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. Active trading is generally not appropriate for someone with limited resources, limited investment or trading experience, or low risk tolerance. Please visit our website www.tradestation.com or www.tradestation-international.com for relevant risk disclosures. System access and trade placement and execution may be delayed or fail due to market volatility or volume, quote delays, system and software errors, Internet traffic, outages and other factors. Equities, equities options, and commodity futures products and services are offered by TradeStation Securities, Inc. (Member NYSE, FINRA, NFA and SIPC). Forex products and services are offered by the TradeStation Forex divisions of IBFX, Inc. (Member NFA) and IBFX Australia Pty Ltd, ABN 84 142 210 179, holder of AFSL #363972. ©2014 TradeStation. All rights reserved. TASC-Nov2014-Futures-LGP.indd 1 9/11/14 12:31 PM CONTENTS NOVEMBER 2014, VOLUME 32 NUMBER 12 FEATURE ARTICLE 32 Trading Forex: 10 When The Smart Money Fails Understanding The Basics, Part 1 by Giorgos E. Siligardos, PhD The Commitments Of Traders by Imran Mukati REVIEW aggregated report is a handy tool In this first part of a new series on for watching the moves of the foreign exchange trading, you’ll 48 • thinkorswim Sharing most significant players in the get an overview of the basics of Product review: Social media markets. But what happens when trading currencies. sharing tools and online the “smart money” fails? You may community for thinkorswim users be able to gain some insights from 35 Q&A the reports. Find out how. by Don Bright DEPARTMENTS This professional trader answers 20 Price Projections, Part 5 TIPS a few of your questions. 6 Opening Position by Sylvain Vervoort 8 Letters To S&C Here in part 5 of Sylvain Ver- INTERVIEW 54 Traders’ Tips voort’s “Exploring Charting 36 Battling The Futures 57 Advertisers’ Index Techniques” series, he looks at techniques such as measured With Larry Levin 57 Editorial Resource Index moves, Fibonacci projections & by Jayanthi Gopalakrishnan 59 Classified Advertising retracements, and daily pivots to Larry Levin is president and 59 Traders’ Resource estimate future price levels. founder of Trading Advantage, a firm specializing in trading 61 Trade News & Products 62 Books For Traders 25 Explore Your Options education. Trading Advantage has made it its mission to teach 63 Futures Liquidity by Tom Gentile students to trade online. We spoke Got a question about options? with him about what it takes to start trading futures. 26 Swing Trading With Momentum On Your Side 41 Futures For You by Ken Calhoun by Carley Garner Seeing a simple breakout may Here’s how the futures market convince you to place a trade, but really works. how do you know if a breakout is really a breakout? Here’s one way 42 Slow Down: you can jump into a trade and not get caught off-guard. Equity Curve Ahead by Robert Cocchiola The equity curve judges the success or failure of your system. What makes an equity curve good or bad? What does it take to achieve a good equity curve? We’ll take a look. This article is the basis for Traders’ Tips n Cover: David Goldin TIPS this month. n Cover concept: Christine Morrison Copyright © 2014 Technical Analysis, Inc. All rights reserved. Information in this publication must not be stored or reproduced in any form without written permission from the publisher. Technical Analysis of STOCK S & COMMODITIE S ™ (ISSN 0738-3355) is published monthly with a Bonus Issue in March for $89.99 per year by Technical Analysis, Inc., 4757 California Ave. S.W., Seattle, WA 98116-4499. Periodicals postage paid at Seattle, WA and at additional mailing offices. Postmaster: Send address changes to Technical Analysis of STOCK S & COMMODITIE S ™ 4757 California Ave. S.W., Seattle, WA 98116-4499 U.S.A. Printed in the U.S.A. 4 • November 2014 • Technical Analysis of STOCK S & COMMODITIE S We do not trade against your stock orders, nor do we sell your orders to others to handle $$$$$$ IS YOUR BROKER TAKING MORE THAN HIS FAIR SHARE? Keep more of what’s yours with our low cost platform for professional traders, investors and institutions. Interactive Brokers Interactive Brokers Interactive Brokers Commissions1 are: Financing Rates1 are: Executions1 are: Stocks: 64-89% 78% better than lower than lower than the industry 14¢ per 100 shares • Charles Schwab • Charles Schwab • TDAmeritrade • TDAmeritrade Options: • ETrade • ETrade better than For 100 to 1000 shares and For a margin loan of the industry 1 to 10 option contracts $50,000 to $1,000,000 17¢ per contract First Half 2014* Interactive Brokers ibkr.com/iwantmore LOWER YOUR COSTS TO MAXIMIZE YOUR RETURN stocks • options • futures • forex • bonds — on over 100 markets worldwide from one account Interactive Brokers is a member of NYSE, FINRA, SIPC – Lower investment costs will increase your overall return on investment, but lower costs do not guarantee that your investment will be profitable. Supporting documentation for any claims and statistical information will be provided upon request. Commissions and Margin Rates as of September 2, 2014. Services vary by firm. [1] For additional information on our commissions and margin rates and execution quality, see www.interactivebrokers.com/compare. * Based on independent measurements, the Transaction Auditing Group, Inc., (TAG). 11-IB14-829CH747 November 2014 • Volume 32, Number 12 OPENING POSITION The Traders’ MagazineTM EDITORIAL [email protected] Editor in Chief Jack K. Hutson Editor Jayanthi Gopalakrishnan ven though traders may convince Production Manager Karen E. Wasserman themselves otherwise, most enter and Art Director Christine Morrison exitE positions based on intuition or emotions. Graphic Designer Wayne Shaw Staff Writer Dennis D. Peterson Rarely do they make their trading decisions Webmaster Han J. Kim based purely on objective reasoning. Many Contributing Editors John Ehlers, Anthony W. Warren, Ph.D. people don’t realize that participating in Contributing Writers Don Bright, Thomas Bulkowski, the markets based on intuition is the reason Martin Pring, Barbara Star, Markos Katsanos traders or investors get so shattered when the market falls sharply. Not knowing what OFFICE OF THE PUBLISHER to do, they freeze and just watch their profits Publisher Jack K. Hutson turn into losses, surprised that things can Industrial Engineer Jason K. Hutson Project Engineer Sean M. Moore turn around so quickly. The sad reality is that it’s natural to get drawn to the idea Controller Mary K. Hutson of making profits, so if a stock keeps moving up, you sometimes buy it without giving it much thought. ADVERTISING SALES 4757 California Ave. S.W. We forget that the markets are not logical. They thrive because of the irrational Seattle, WA 98116-4499 1 206 938-0570 Fax 1 206 938-1307 nature of our emotions. In fact, if the market was a living being, it would probably [email protected] get a good dose of daily entertainment observing our actions. The thought of making National Sales Manager, Classified & Web Sales Edward W. Schramm money gets us excited, but when it comes to thinking of how to protect our capital, Advertising Sales Summer Davis we write it off thinking it won’t be necessary.