Newsletter

January 13, 2007

So You Want to be a Trader?

Market & Sector Review
Worthless Notes?

Largest Changes In Raw Numbers (21 Days)

This Week's Economic Reports

So You Want to be a Trader?

You have made a decision: you're going to become a trader, master the markets and take home huge profits. Each year thousands upon thousands of people make the same decision. Most often the reason is to relieve them of a boring, mundane job. If this is you, the bad news is that the vast majority of these would be traders fail. Why? They have made an apparent decision to trade but they have not made the more important decision to make the proper commitment. You have to incorporate trading into your life and do whatever it takes to hone your trading skills to the point where you can master the markets.

"Until one is committed, there is hesitancy, the chance to draw back" - Goethe.

In his book, "The Mentally Tough Online Trader," Robert Koppel observes, "Top performing traders are committed to overcome any hardship or roadblock to achieve their goals." Besides capital you also must invest time and energy. It's impossible to digest all there is to know overnight. You just can't do it in an hour a week.

Learning about the markets and developing an intuitive feel requires time and practice. In some cases, it can take many years before you can trade the markets profitably. But to the trader who is fully committed, these are minor setbacks. Once you make the commitment to master the markets, you'll do whatever it takes to attain success.

Trading is serious business. You cannot treat it like a hobby. If you do not have the proper commitment, you will approach trading lightly. You will begin to feel that you might as well have fun, trade on impulse, and seek out excitement. Why not visit a casino once in awhile to satisfy that need. A casual, uncommitted attitude will prevent you from excelling. In fact a casual, uncommitted attitude will eventually wipe out your account balance. I have personally witnessed the effect of non-commitment, far too many times in my career. Don't make this mistake! Trading the markets requires you to passionately commit to becoming the best trader you can be.

If you want to make huge profits, it's not enough to decide to become a winning trader. You must also make a strong commitment to do whatever it takes to achieve enduring financial success.

If you forget you have to struggle for improvement you go backward. - Geoffrey Hickson
Market & Sector Review
Worthless Notes?

I hope all of you keep a daily journal on the markets, the more extensive the better. Last weekend while reviewing the New Sector analysis section for myself, I made a couple of interesting notations. Personally I make quite a lot of notes each evening, let's just highlight a few. Of 31 sectors 23 declined and 9 managed to eek out an advance in an otherwise declining market. The largest advance coming from the Internet sector followed by Computer Hardware (read Apple) then Drugs. The other advances occurred in Specialty Retail, Diversified Services, Transportation, Computer Software & Services, Media, and Retail. The obvious decision is to first look at the advancing sectors, especially in a declining market, but for this weeks newsletter I will digress a bit from the obvious.

I noticed in Friday's (1/5) activity with the DOW down 83 points only two sectors managed a gain. Noteworthy, at least to me, the Energy Sector, up 0.62 on a volume surge, are we being notified of a new energy move? I always make note of volume surges as they are often advance notices of things to come.

Looking through the data line on energy there does not appear to be a great deal of positives, save perhaps one. Looking at the Trends of the sector (I like to go backwards), long-term trend "UP", intermediate term trend "UP", short term trend "DN". On the surface this smacks of a short term correction within an on going bull market. Without, at this stage, having looked at a chart could be a distinct possibility, couldn't it? However, before looking at any charts, let's take a look at the five industry groups that comprise energy.

The short, intermediate, and long term trends seem to mirror the sector itself. However, two of the industry groups are turning down on a longer term basis. What's important here is should we have a rally in energy whether it's just a bounce or something else Independent Oil and Gas should lead. The strongest stocks in this group, based on relative strength ranking are: (AEZ) American Oil & Gas Inc; (APA) Apache Corp; (APC) Anadarko Petroleum Corp; (ATPG) Atp Oil & Gas. Not a bad little watch list for early in the week, should this sector and industry group be ready.

Whenever one is dealing with basic materials stocks, i.e. energy, metals & mining, or even chemicals it will behoove you to take a look at the commodity charts for the underlying raw material. If you are looking for commodity charts I personally like the ones provided free by Brite Futures, so let's take a quick look (our first look at any charts in this analysis).

I'm sure you have read or heard about the breakdown in commodities in general, now you see it. While the notes presented here have been primarily investigating energy, the above charts may have major market implications. The price of Copper, for instance is an excellent economic indicator as it is a major raw material in several manufacturing industries as well as home building. The Copper as well as the Oil and Gas charts above are probably looking ahead to a decent possibility of an impending recession. Should the stock market pick up on that we should expect at least a decent correction.

Years ago I nicknamed the above (and below) charts as cliff formations, as it appears the markets just fell off a cliff. If you go back in time and view the many cliff formations, especially in the futures markets, a V bottom is rather rare. As an old commodities trader I would not attempt to pick a bottom in any of these markets, they will probably at some point have to go into a basing period before any sustainable advance can begin. Where is that point, no one knows, perhaps here but more likely lower. Any energy trade from the long side in here will have to be very short term in nature. One more chart to check though: Composite chart of the energy sector, perhaps the stocks will foretell a turnaround? Chart as of Wednesday 1/10 close.

Worthless notes? Notes taken are never ever worthless. Notes will not only give you a perspective on what is going on, they are an excellent source of learning. In this particular case I have found a sector that for now, according to my style of trading and my goals, is not suitable for me to trade other than on a very short term basis. I can find better! But I'll be keeping an eye out. If in a few weeks or a few months this sector takes off once again you can rest assured I'll be re-reading those notes attempting to discover what I missed, if anything. Many times you will re-read your notes and honestly say to yourself, if the same conditions existed today, I would act in the same manner. I didn't miss anything I just didn't feel the risk/reward was in my favor. Worthless notes, time wasted? Nope that is very valuable information!
Largest Changes In Raw Numbers (21 Days)

This Week's Economic Reports

Have A Great Week!

Bill

Disclaimer: Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.