Picturing Option Profits to Make Money in the Stock Market – Part 2

In last week’s article, which you can read here, I began discussing using option payoff diagrams, or risk graphs. These are an invaluable tool that must be mastered before we can expect to be successful with options. Fortunately, that’s not hard once you get the hang of it. We’ll go farther down that path today.

Last week we showed the payoff graph for a regular stock position – a hundred shares of Apple Computer. Updating that to the price as of this writing, this is what that chart looks like:

Option Payoff diagram – AAPL stock

AAPL01

This graph is just a 45-degree line, a slope of one in one (one dollar “rise” in profit per one dollar “run” in the stock price). The red vertical line is at today’s close of $102.39. If we look to the left from the intersection of that line with the P/L plot (the dark green line), we see that that intersection is at a “Theo Value P/L” value of $0.00. This makes sense. If we bought AAPL at the current price of $102.39 then we would have zero profit if it stayed there. We’d have positive P&L if it went up, and we would lose if it went down.

Next, let’s look at the chart of a call option on AAPL, instead of the stock itself. As of today, we could buy a 105 September Call option for $1.41 per share ($141 per 100-share contract). Anyone who owns one of these calls has the right to buy 100 shares of AAPL at $105 per share, at any time before the options expire at 4:00 PM EDT on Friday, September 19. If we bought one of those calls instead of the stock, then our profit picture would look like this:

Option Payoff diagram – Long AAPL Sep 105 Call

AAPL02

 

Unlike the case with the stock position, this one has a horizontal section. It stretches from a stock price of zero (off the chart to the left) all the way to $105. That horizontal line is at a P&L value of -$141 (on the left scale). This indicates that the maximum loss on that position is the amount paid for the option – $141. If AAPL doesn’t exceed our $105 strike, and we hang on until expiration, that will be the amount of our loss.

Above $105 (prices further right on the chart), the P/L curve ascends. If AAPL is higher than $105 when this option expires, then the option will have some value, and we as owners of the call will not lose our full $141 investment. If AAPL exceeds the $105 strike price by the amount needed to pay back our $141 investment, then we break even. The gold vertical line at that stock price (strike price plus option premium, $105 + $1.41 = $106.41) crosses the green P/L line where that green line’s value is zero.

If we are fortunate enough to see AAPL climb higher than $105, then we begin to make money. And the higher it goes, the more we make, with no limit.

This particular option could potentially pay off many times more than our $141 investment. BUT – AAPL has to move a lot in a short time to make that happen. If it doesn’t get a move on, we stand to lose money. True, that’s only $141 at worst, and that is a lot less than the cost of 100 shares of stock. Still that $141 is 100% of our investment.

Buying this specific option is therefore a very speculative trade. We’re betting on a big move. If it doesn’t happen, we lose.

So who wins? If we did lose our $141, to whom would it go? The answer is that it would go to the seller of the call option. We paid that person $141 when we bought the call. In return, they were obligated to sell us AAPL at $105 whenever we wanted, up until expiration. Since we never exercised that option, their obligation disappears when the option expires, and they pocket the money.

So let’s look at the other side of this trade. Here is the profit picture from the call seller’s point of view:

Option Payoff diagram – Short AAPL Sep 105 Call

AAPL03

 

Compare this diagram to the previous one. Note that it is the exact mirror image, if the graph is rotated around the horizontal axis. The horizontal line, at a P/L value of +$141, now indicates the option seller’s maximum profit. He took in $141, and he hopes to retain it. If AAPL stays below $105, he will do just that.

On the other hand, the P&L plot extends down to infinity at the right side of the graph. This reflects the fact that the call seller’s loss in unlimited – the literal mirror image of the option buyer’s unlimited potential profit.

The gold vertical line at $106.41 still crosses the P/L plot at a value of $0.00 on the left axis. But here the P/L curve slopes downward. This illustrates the fact that if an option buyer makes any money, the option seller loses that same amount. This is true at any price of the underlying asset at expiration. What one side gains, the other side loses. This is the definition of a zero-sum game. The sum of the wins and losses is zero.

Now let’s take another step. What if the person who sold the call option (as in the above diagram) also bought AAPL’s stock at its current value of $102.39 (the first diagram)? The combination of the long stock and the short call is referred to as a covered call. This combined position would have a diagram of its own, which would look like this:

Option Payoff diagram – Long 100 shares AAPL at $102.39, Short AAPL Sep 105 Cal @ $1.41

AAPL04

The profit or loss on this covered call position, at any stock price, is the combination of the profit or loss on the stock, and the profit or loss on the short call. Notice these points about this combined position:

  • The break-even price – where the dark green line crosses zero on the left scale – is now at a price that is lower than the current stock price. That break-even point is now at $100.98 (gold line). By selling the call in addition to owning the stock, the investor has reduced his cost by the $141 call premium.
  • If AAPL now stands still, the stock owner’s profit is positive – in fact he makes $141.
  • This improvement in his immediate P/L picture has come at a cost. His profit is no longer unlimited. Because he is obligated to sell the AAPL stock at $105, he can never make more than ($105 – $102.39 = $2.61) on the stock; this amount, in addition to the $1.41 that he received for the call, is his maximum profit. This is shown by the horizontal line at a P/L value of ($261 + $141 = $402).

By combining the diagrams of these two separate positions, we can now see what the combined net profit would be at any stock price. This is a tremendous help in visualizing our potential profits and losses. There is still more that these diagrams can tell us, and we’ll review that in future articles.

Knowing how to interpret these diagrams, and manipulate them to take into account our educated forecasts for future prices, is an essential skill. A proper trading education is essential to being profitable in options, or any other kind of trading. That kind of education is available in our on-location or online classes. Contact your local center for details, or go to www.tradingacademy.com.

For question or comments on this article, contact me at rallen@tradingacademy.com.

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Fanning Your Trading Success Part 3

Now that we have discussed the major, intermediate (Part 1), and minor tops and bottoms (Part 2), we can now introduce a tool called the Gann Fan to identify potential support and resistance levels as we move in trend from those areas.  This is not necessarily going to replace the supply and demand levels that you are already familiar with on your charts, but they can add to your precision when choosing entry and exit points for trades.

Gann believed that price moved in certain repeatable patterns based on price and time.  In using the angles of the fan, you are looking at areas where prices are likely to turn due to a combination of the two.  Since there are cycles that can be seen in all securities, a trend that is approaching the end of that cycle should turn at a predictable point.  That point is the intersection of a fan.

TradeStation does have Gann Fans available on the program, but there is a catch.  You will have to enter the “Points per Bar” that will set the angle of the fan and also the direction of the fan.

format fan

There is a guide as to the points per bar we should use for most securities.  I have included a table here:points table

Let’s see an example of how this works in a chart.  We want to place these fans at the tops or bottoms that we are using as our starting point for the trend we are trading.  That way, we can identify the supply and demand levels that are likely to reverse our security’s price.

aapl fan

gold fan

You may have noticed that both examples were on daily charts.  Even the tables I showed only go as small as daily charts.  So what can we do if we are going to trade intraday?  Well we need to adjust to the points per bar for intraday trading.  You would simply do this by dividing the number of candles in a day into the daily table number.  For example, there are 78, five minute candles per day.  Dividing 78 into 0.25 tells us that we need to put 0.003205 into the points per bar for trading on a five minute candle chart.  If we are using a fifteen minute chart, then we would divide 26 (there are 26, fifteen minute candles in a day), into 0.25 and use 0.009615.

spy fan intraday

qqq fan intraday

So experiment with the fans and see if they can help you as an odds enhancer for your trading.  Until next time, trade safe and trade well!

Brandon Wendell
bwendell@tradingacademy.com

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Courage and Vulnerability: Two Keys That Can Help You Trade Your Best

Brene’ Brown, PhD, a Sociologist and Researcher gave a TED talk, (Technology, Entertainment and Design) which garnered over 8 million viewers and of those about 2.5 million on YouTube.  Her talk was about vulnerability and shame.  She has been studying and writing about these topics for many years.  She gave an inspiring speech that led me to share some thoughts designed to help your trading.

I often talk about courage and the need for courage in your trading.  But what is courage?  Often, people think that “bravery” is courage, and of course acts of bravery can involve courage; the firefighter who runs into the blaze on the momentum of her training; the police officer who stops criminals in the act just doing his job; the soldier who fights for his country… these are examples of bravery.   But, courage is something that can potentially happen to each one of us every day.  In other words, the person who is shaking in her boots in her church, synagogue or mosque to give a welcoming speech and feels terrified, but does it anyway; courage is the nerd at a mixer who is standing in the corner, sees an attractive woman and despite his feelings of social inadequacy goes over and introduces himself; courage is saying I love you first.  And, courage is the trader who despite his strong desire to give in to the urge to move a stop, chase or prematurely exit the trade, but, instead takes a deep breath and remains invested in learning and keeping his commitments.  Courage is standing up for something important and feeling fearful to the point of immobility but doing that thing despite the fear.  Courage is also embracing ambiguity in the service of curiosity, growth, vulnerability, risk and exposure.  What greater example of the risk to self-esteem, ego-involvement, the need to be right, the fear of being wrong and the shame quotient than trading.  It’s about “daring greatly” and its inextricable connection to successful trading and life.  You’ve got to be clear about your intention setting, uncovering your limiting beliefs and clarifying your values which must be brought into the mix if you are going to muster the strength to be willing to fail.

Courage to tradeBut, how do you muster that courage?  How do you move into the face of potential failure and the subsequent shame?  It’s through the willingness to be vulnerable.  And, to be vulnerable is to be courageous.  They work hand-in-hand.  Identify what matters most in your life and put it in the service of what matters most in the trade.  Stand up to the possibility of ego involved disaster and the  catastrophe of loss due to the uncertainty and remain “connected” to the roots of your passion; that is, your family, your friends and/or a community cause that captures your imagination and your heart.  The connection is where the rubber hits the road for us as human beings.  Whenever we stay connected and remain cognizant of the importance of that connection; that is, the connection to your spiritual beauty, connection to your loved ones, your connection to life we then are embodying our true selves, we are then developing the capacity for courage.  Brown says that we must “get into the arena” be willing to embrace the uncertainty and the possibility of failure, in order to be able to experience the exhilaration of success.  The interesting thing about success is that it is very expensive.  I’m not talking about the expense of hard work, or determination to keep practicing, or the investment of time and energy in the preparation.  No, the cost that I am speaking of is the cost of putting it all on the line and accepting the risk in the heat of battle and that you may fall on your face and…fail.  This is the cost that so many are unwilling or unable to accept.  This is the cost that immobilizes the trader in the face of their plan, strategy and set-up where they fail to pull the trigger and stand back in the sidelines and watch the price-action hit what would have been their target.  This is the cost that keeps you from letting your winners run, or allowing the market to prove your plan right or wrong.  This is the cost that sustains mediocrity and robs you of those moments when after venturing into the arena, scared to death, you throw caution to the wind, fight your hardest, remain steadfast to your rules in the trade, and…”win.”

Yes, vulnerability is very scary and uncomfortable.  Unfortunately, most people will use blame to assuage their shame at not following through.  They blame the dog, the spouse, the kids, the markets, the news feeds; everything and everybody but themselves.  They are unwilling to take responsibility and be accountable for “their” actions or lack thereof.  What they don’t realize is that they are using blame, as a way to discharge the pain and discomfort that comes from the shame.  In other words… “it’s not my fault.” But, know that even though it does not feel like it at the time, vulnerability is not a weakness; it is powerful.  Actually, emotional risk and uncertainty are the most accurate measures of courage.  Vulnerability is the birthplace of creativity, innovation and change.  Consider for a moment how hard change is.  One of the reasons is that in order to change you must be willing to venture into the uncertainty of trying something different; that is, something that could be a bust and at that moment the ego is saying…”You’re going to do WHAT?  Are you kidding?”  So, we maintain the status quo and keep doing the same thing and hoping for a different result.  And, even further in the back of their minds are the limiting beliefs of, …”I’m not good enough and/or who do you think you are?”

Brown shares that shame breaks down along gender lines.  For women, they must be organized, do it all, do it perfectly and do it now.  On the other hand, men must not be seen as weak, so of course vulnerability is out of the question much of the time since it is interpreted as a weakness.  Also, we can see it in how guilt and shame is approached in the language.  With guilt we say “I’m sorry I made a mistake.”  With shame the underlying often unspoken comment is, “I’m sorry, I AM a mistake.”  One way to counteract shame is through authentic connection and empathy.  In fact, Brown says that empathy is the antidote to shame and when we are in the struggle of the arena the two most powerful words that someone can say are…”Me too.”  There again, it is the critical importance of connection that is operative.

Over and over again, fear, doubt and anxiety while trading are driven by the false evidence appearing real.  It is when our stories about what it means to lose and the mythology that swirls deep in our ego entrenched beliefs about ourselves cause us to interpret events in ways that have us running to the hills in order to dodge the shame of failing.  At those times we are deathly afraid of the very thing that will help us to eventually learn, grow, and thrive in our trading and that is our ability to be vulnerable and embrace the risk of failure.  At that fork in the road we have a choice, to either go to the left, give into the fear and attempt to sidestep the shame (which cannot be avoided with that choice) or go to the right and choose to be open and embrace the risk, to be vulnerable and with that also embrace the potential for victory; a victory that can only be experienced through that choice.  So, my challenge to you and to us is to pledge to be accountable in that moment and be courageous through the power of being vulnerable…be willing to be uncomfortable in the service of your highest and best trading goals and keep your A-game at the platform.  So as Brown says “dare greatly.”  The most terrifying is joy… because you’re waiting for the other shoe to drop.  When we lose our tolerance for vulnerability,  joy becomes foreboding.  We try to beat vulnerability to the punch, so many put off joy because they are dress rehearsing tragedy, we become afraid to experience the joy because of our fear that it may be taken away.  The antidote is to practice gratitude.  Be grateful and thankful in and for this moment … and every moment…this trade and every trade.  These and other concepts are what we share in the “Mastering the Mental Game” Online and On-location courses.  Ask your Online Trading Academy representative for more information and also get my book “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading,
Dr. Woody Johnson
wjohnson@tradingacademy.com

 

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Wrap Around Loan – Gets the Deal Done

What is the most important thing in ANY real estate market – Getting the Deal Done! There is a financing technique known as “All Inclusive Deed of Trust” (AIDT), also called a Wrap Around Loan that can be just what you need to get the deal done.

To put it simply an AIDT takes a preexisting loan and absorbs it into a new loan.  The new loan is made by the seller of the property to the new owner.  DISCLOSURE – THE LEGALITY OF THIS IS DIFFERS BY STATE AND THE PREEXISTING LOAN.

Example: I’m selling a property for a total of $300,000, and there is an existing mortgage on the property that has a balance of $250,000, with an interest rate of 6.5 percent. I’ve found a buyer who wants the property and is willing to put $30,000 down, but the buyer had a short sale three years ago and is having a hard time qualifying for a loan with a conventional lender.  The buyer now has a good job, has proven they are credit worthy and can afford the property.  So, as the seller, I decide to sell to them and use an AIDT to facilitate the financing.  I create the AIDT for $270,000, with an interest rate of 7.5 percent.  This means the AIDT is wrapped around the existing mortgage of $250,000. The buyer now gives me the $30,000 cash down payment and makes loan payments to me and I continue to make the payments to the bank on the $250,000 mortgage. I’m now making 7.5 percent on the $20,000 and one percent on the $250,000.

There are many benefits of an AIDT. It creates flexibility and the ability to negotiate all of the terms of the deal, including the payment, interest rate, maturity date, late charges, and prepayment penalty.

If the original mortgage includes a “due on sale clause” then the creation of an AIDT will require both legal and tax counsel in order to create a legal and practical AIDT.

Here are some of the steps to follow when creating an All Inclusive Deed of Trust:

  • Make sure you have all the relevant information regarding the existing loan, such as the payments, the interest rate, the date of maturity, the balance of the loan, and any other additional terms of the loan.
  • Execute an all inclusive deed of trust in your favor with the same terms that are used by the original loan except for the interest rate.
  • Manage the rest of the transaction as though it was a standard loan; do a credit check, verify funds, have references and so forth.
  • Use a servicing company to accept the payments from the buyer and pay the original loan.  In this way you won’t be personally involved.
  • Also consider having a note buyer review the terms of the note so you’ll know the marketability of the note if you need to sell it.

All inclusive deeds of trust allow for a great deal more flexibility and options when it comes to buying and selling properties.

An AITD can also be a very powerful tool when marketing the property.  In today’s environment there may be buyers who will be worthy to own property but who may have been through a difficult time and will need a little help getting back into the market.

 

Great Fortune,

Diana Hill

dhill@tradingacademy.com

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Forex Trading with Bollinger Bands®

Hello traders! I’m writing this week’s newsletter from beautiful Norwalk, Connecticut, while watching the sunset on Wednesday of a futures class. In this class there is a student who loves to use Bollinger Bands® as his own odds enhancer when trading, so I thought I would share a few helpful tips for this tool, applied to the spot forex market.

First let’s define what Bollinger Bands are. Investopedia defines Bollinger Bands as, “A band plotted two standard deviations away from a simple moving average, developed by famous technical trader John Bollinger.” If you’ve ever seen a bell curve showing a distribution of measurements of something, for example, people’s heights, incomes, home sizes, whatever, most of the data will be stacked in the middle of the bell curve. The further you go from the median/midpoint of the bell curve either above or below, the fewer data points you will get. If the average height of men in America is 5’9”, most men you meet here will be about that height. How many 7’2” men do you meet? One a month? One a year? The point is the further away from the median data point, the less likely it is to find these measurements. In trading, if prices go above or below the Bollinger Bands, those readings of price action are unusual, and prices should revert back to “normal” or inside the bands, if not all the way to the median. In statistics, the two standard deviations above and below the median (in this case, a moving average) should hold about 96% of all the data. Let’s take a look at a chart, which should be easier to understand!

fig 1 lftp 20140902This is a four hour chart of the AUDUSD, with a Bollinger Band overlaid on the price action. The middle blue wiggly line is a 20 period moving average, and the other two wiggly lines are showing two standard deviations above and below the moving average. So, most (~96%) of the price action should be inside of the bands. Whenever price is outside of the bands, especially on fast moves outside of the bands, price action tends to quickly revert back inside the bands, usually to the moving average. If price action moves above the upper wiggly line, prices are considered overbought, and if price action moves below the lower wiggly line, prices are considered oversold.

In addition to the Bollinger Bands on the chart, I have also marked in two of our supply zones and one demand zone. Using the bands as an odds enhancer for your trading can definitely help, otherwise I wouldn’t have written this article! At the blue arrow labeled “1,” you can see that price action rapidly moved up to supply, well past the upper band. So…would you take that short trade? Price moved quickly to a clean supply zone, deep into “overbought” territory on our Bollinger Band tool. I hope you would be interested in this trade! As mentioned previously, a potential first target would be the moving average; however, I prefer to use previous demand for a target on short trades, and previous supply for targets on long trades.

At the second blue arrow, marked “2,” price again moved up into supply, but this time just barely peaked out above the Bollinger Band. While I would prefer a faster, farther move out of the band to take a trade, this example still did fit our criteria.

At the third arrow, marked “3,” price quickly fell into a demand zone and again, well outside the Bollinger Band. This would have fit the criteria of trading with our patented core strategy, plus with the added bonus of being “oversold” with the bands.

Another helpful use for the Bollinger Band tool is to help you stay with a trending market. In an uptrend, very often the trend will be held between the moving average and the upper band. In a downtrend, usually the move is held between the moving average and the lower band. Both examples are demonstrated in the following chart.

fig 2 lftp 20140902So there you have a breakdown on a couple of easy ways to use the Bollinger Bands to help you trade: first, to help with entering trades, and second, to help you stay with a trending market. Please don’t try to only use Bollinger Bands to make your trading decisions! There have been thousands of traders out there who have tried to use just one indicator or oscillator to make their trading decisions for them; why do you think you don’t hear about those traders? Because using just one thing that comes FREE with your trading platform won’t consistently make you money! Combined with our supply and demand strategy can make these bands a very powerful tool. Yes, there are a few more tricks to these bands, but we’ll have to save those for our live classrooms or our Extended Learning Track online training rooms.

 

Until next time,

Rick Wright
rwright@tradingacademy.com

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Trading without Emotion

Is it possible to trade without emotion? I believe so, however, it will take plenty of work to get there.  We all know that the financial markets largely operate on the emotions of fear and greed, and that markets move on the collective perceptions of those that participate in them.  As traders we must learn to identify what fear and greed looks like on a price chart, so that we can capitalize on the weaknesses of other traders.  It may sound crass to say that, but that’s the reality of speculating in the financial markets.

So what if you can’t see the emotions of fear and greed on a price chart, and you personally wrestle with these emotions in your own trading?  If this sounds like you, and you react impulsively to every movement in the market, it tells me that you probably don’t have a sound set of rules that govern your actions when trading.  It seems then, that one way to begin controlling emotions is by learning a proven strategy that has a simple way to identify entry and exit points. Once that work is done then the most challenging aspect of trading begins, that is the discipline to follow the rules and not let emotions interfere with the system.

At Online Trading Academy we teach people to set the entry stop and target all at once and then leave the trade to play out.  We call this “set and forget” because that’s exactly what it means forget it and get comfortable with the outcome. This way of doing trades serves to take the emotion out of trading. This is very important as emotions are a trader’s worst enemy.  It seems easy enough, but for the average trader this is quite difficult. That’s simply because most traders are emotionally attached to the outcome of each trade.  Getting around this issue requires a “rewiring” of the brain to think in terms of probabilities, risk, and reward.

On Wednesday of last week I was in a session with some our student’s having a discussion about this very topic. I showed a trade that I was in, the Soy Bean market and was already about one quarter of the way to my profit target.

Soy Bean Trdae 8-27-2014

In the chart above, we can see the risk on the trade is $112.50 and the reward is $500.00. The profit target is not an arbitrary number but rather a strategic area where sellers have been present in the past.

If we leave the trade alone there are only two possible outcomes: a loss of $112.50 or the profit $500 will be achieved.  If a trader is only right 50% of time and has the discipline to achieve these types of risk-to reward ratios, how do you think she will do? The answer is very good.

Yes, we could trail the stop and make many adjustments along the way but that gets us emotionally involved in the trade.  Think about how many trades in your past would have worked if you had just left them alone.

In the final analysis, how this trades ends up is of little consequence in the big picture scheme of things, that is only if, the losses are small, the reward is high and the probabilities are higher than average (having an edge).

Until next time, I hope everyone has a great week. 

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Trading and Investing Profits

Crude Oil Futures

So often in the trading world, I hear people talk about where price is likely to turn next, where is the next key supply or demand level, where is the next big market move going to originate from, and so on. The question I hardly ever hear anyone asking is, “Where is the next big profit zone?” This is one of if not the most important things to consider when speculating in markets.

The profit zone is the distance in price between the entry point and the profit target price. Another way to say that is the distance between demand and supply. When looking for trading opportunities, people tend to focus on where the next big turn in price will happen. As I often write about, these turns happen at price levels where supply and demand is out of balance. When looking at charts, you will find that there are many supply and demand levels. By no means are we interested in taking trading opportunities at all the levels we find. In fact, when considering profit zone into the filtering mix, we would ignore most of the supply and demand levels we find and narrow our focus down to the supply and demand levels that have large profit zones associated with them.

Live Trading & Analysis Room – Crude Oil Futures: 8/26/14 “The Setup”

Crude Oil Futures

To explain the concept of profit zone and its importance in trading, let’s take a look at a trade from last week from the Extended Learning Track (XLT), our live trading room at Online Trading Academy. Here we are looking at a small time frame chart of Crude Oil. Notice the demand level (yellow box). This is where we expected there to be more willing demand than supply. The strategy tells us that banks and institutions are buying Crude Oil Futures at that level. Next, notice the rally in price from that level. This tells us what our initial profit zone is and often, our entire profit zone. The fact that price rallied up to the high of that move tells us there can’t be any significant supply until that high or higher. So, when price declines back to our demand zone where we want to buy, we expect price not only to turn higher at demand but also rally to at least the high of that initial rally from demand. Again, that rally opens up the profit zone for us. In other words, there is no significant supply to stop price from rallying up to that high and higher, depending on where the fresh supply level is above that high. The trading opportunity was to buy at the demand level below and profit from a move higher.

The key element here is to identify where bank demand and supply is, then look at current price, and finally determine the “path of least resistance” as that is where the next move in price is likely to go. Meaning, price is likely to have a relatively easy time moving through the ranges between supply and demand, the profit zone. Keep in mind a VERY important point here: I am coming to all these conclusions BEFORE I enter the trade and making decisions based on objective information. You must perform your analysis in advance and make your decisions before its time to push the button or this will never work. This is exactly what we did in the XLT that morning, before prices moved into our action areas.

Live Trading & Analysis Room – Crude Oil Futures: 8/26/14 “The Result”

Live Trading Analysis Room

As you can see above, the trade worked out as planned and quickly traded much higher after turning at our demand zone. This is again because there was no significant supply above to stop price from doing this and we had all that information well in advance, since we knew what we were looking for.

As I mentioned earlier, there are many supply and demand levels on a chart and many large and small profit zones. The key for the astute trader is to be able to identify objective supply and demand levels. Then and only then will you be able to find supply and demand levels that have significant profit zones associated with them. What I do is ignore most supply and demand levels on a chart and only focus on the ones that have a great distance between them. This does two things. First, it obviously offers an attractive risk / reward opportunity. Second and just as important, the larger the profit zone, the greater the probability of the trade working out. This is because when you have a big profit zone, by definition your supply and demand levels are far out on the supply and demand curve. Entering your trades at market price extremes increases the probability of success.

To better understand the concept of profit zones in trading, think of profit margins in any other business. Think of how companies who sell products determine what to sell. Most of the decision if not all of it comes down to profit margin. Think about companies who produce products and how they decide what to produce. Most if not all of that decision comes down to profit margin. The decision on which trading opportunities to put your hard earned money at risk on is absolutely no different and in fact, we chart profit margin the same way as any successful company would.

Hope this was helpful. Have a great day.

Sam Seiden – sseiden@tradingacademy.com

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Technical analysis of EUR/JPY for Sep 02, 2014

Technical outlook and chart setups:

1. The EUR/JPY pair seems to have taken support from the back side of resistance turned support line around 136.50 levels last week. Current price is around the 137.40/50 mark and is expected to rally through 139.00 levels and higher. 

2. Support is seen at 136.50 (interim), followed by 136.00 and lower while resistance is seen at 139.20, followed by 140.00 and higher respectively.

3. The structure indicates that EUR/JPY is in control of bulls at the moment and rally is set to gain momentum.

Trading recommendations:

Remain long, stop at 136.00, target is open.

Good luck!

The material has been provided by InstaForex Company – www.instaforex.com

Technical analysis of EUR/USD for September 02, 2014

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When the European market opens, some economic news will be released such as Spanish Unemployment Change, PPI m/m.The US will release its Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending m/m, IBD/TIPP Economic Optimism, and ISM Manufacturing Prices. So amid the reports, EUR/USD will move low to medium volatility today.

Today’s technical
levels:

Breakout BUY Level: 1.3196.

Strong Resistance:1.3188.

Original Resistance: 1.3175.

Inner Sell Area: 1.3162.

Target Inner Area: 1.3131.

Inner Buy Area: 1.3100.

Original Support: 1.3087.

Strong Support: 1.3074.

Breakout SELL Level: 1.3066.


Disclaimer: Trading Forex (foreign exchange) on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

The material has been provided by InstaForex Company – www.instaforex.com

Technical analysis of USD/JPY for September 02, 2014

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In Asia, Japan will release its Monetary Base y/y, Average Cash Earnings y/y, 10-y Bond Auctionand the US will release its Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending m/m, IBD/TIPP Economic Optimism, and ISM Manufacturing Prices. So there is a big probability USD/JPY will move with low to medium volatility today.

Today’s technical
levels:

Resistance. 3: 105.09.

Resistance. 2: 104.89.

Resistance. 1: 104.68.

Support. 1: 104.43.

Support. 2: 104.22.

Support. 3: 104.02.


Disclaimer: Trading Forex (foreign exchange) on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

The material has been provided by InstaForex Company – www.instaforex.com