The answer is, the market will keep going up as long as there is upward demand and momentum. No one actually knows how far the market will go up for certain, unless you have a crystal ball, that is. However, there are technical clues that can help us determine if we are at the top of the market or if there is continued bullish market momentum. In previous articles, we have discussed the idea of different price patterns and support and resistance levels that we can use to help determine when the current market momentum is strong or weak. Today, I would like to discuss what clues we can look for to help determine the potential future direction of the current Standards & Poor’s 500. Over the last couple of weeks, we have seen the S&P 500 pull back and then move up sharply several times, but, each time, it has left several clues concerning current momentum.

How do we identify market momentum? Once a trend starts, the market just doesn’t go straight up or down, but will have times where the market moves back against the trend or, in other words, pulls back. Often times, because of the market forces of supply and demand, the market finds natural levels of profit taking in most market moves. Let’s first look at these back and forth price patterns that we often refer to as continuation or “Flag” patterns. In a bullish market, these flag patterns are created by the price action moving up first with the trend and then against, or counter the trend, while then moving back up again with the trend. These flag patterns create minor support and resistance zones, or flags, within the current trend. A current chart of the S&P 500 shows three of these flags, or pullbacks, since the beginning of June. See chart below:

The second clue we can look to for evidence of continued market momentum is bounces off of a support level. The definition of support is a price level where the market finds a bottom, or a price floor, as the market is moving down. It is where demand is strong enough to prevent the price from moving any lower. The idea is that as the price gets cheaper, investors become less interested in selling, more interested in buying, and the demand, therefore, picks up. Much like a stone being skipped along the surface of a lake, if the price action “skips” along a short-term support level, this is a very good indication of continued, bullish market momentum. This concept can also be applied to a bearish, down market, but you would be looking at bounces off of resistance as a ceiling, as the market is going down.

Now let’s apply these two technical clues to short-term flag patterns and bounces off of support to the current S&P 500 chart. See the chart and note the three recent bullish flag patterns and the three corresponding bounces off of the 20-period SMA. This is a classic indication of a continuation pattern, confirming bullish momentum.

So in conclusion, do we actually “know” anything about the market’s future direction? No, not really; however, if we see technical patterns like those above of bull flags and bounces off of short-term support, the probability is much higher that the market momentum is strong and will continue to move higher. But if you’re wrong, that is why we always use good risk management rules!

This might sound like an unusual topic to discuss, but it is an important discussion to have. There are times when the market does not give us the setups we are looking for to actually enter a trade. In times like, this we need to know what we can do with our time. Instead of trying to force trades, we should be looking for ways to improve what we are currently doing.

In our article today we are going to suggest a few things that you can do when the market is less tradable.

The first thing you can do is to take some time to review your trading rules. Trading rules are the foundation of any successful trading and need to be reviewed and updated regularly. When there are no trades presenting themselves, you can go back and make sure you’re following the setups and entries like you’re supposed to. You can go through what your setup rules are to make sure you can see them clearly on the charts. You can analyze your entry trigger to make sure you are still following it as well as your exit rules. This does not take a lot of time, but it’s important to regularly review your rules.

Another thing you can do is to go back and review your trading journal. Look back at your more recent trades to make sure you were following your rules. This is a good way to analyze your trading mindset to make sure you are being disciplined and able to follow your trading rules. If you do not have a trading journal, this is a good time to put one together.

Reviewing the upcoming news is something that you can do when the market is quiet. Knowing what news is coming out can prepare you for the time when the market may get more tradable. News can be found on most broker sites, so make sure you know where to find it.

One of the most important things you can do is to evaluate your trading statistics. Knowing what your win:loss ratio is will allow you to see how well you’re doing with your trading strategy. In conjunction with this, you should also know your average win:average loss ratio so you can see if you’re exiting your trade properly. Often times, if your average loss is big, it is because you have let a few of your trades run to big losses. Knowing these important ratios will help you know where you can focus on improving.

There are many other things you can do when the market is not giving us trading opportunities. Take some time to list out what you can do so you avoid the urge to just trade to be trading. Knowing when not to trade is, often times, just as important as knowing when to trade. By practicing restraint in taking a trade, it will help you avoid trading when the market is less reliable. Make sure you have your list ready so you know what to do.

I believe the best trades are structured trades. Whenever we enter into a trade, no matter what the system or method used to enter the trade, it is important to have a set profit target and set stop loss. This will allow you understand the risk to reward potential and to be patient to allow the trade to mature without getting too anxious and wanting to terminate the trade early or widening your stop and increasing your risk in the trade.

Setting Profit Targets

First, let’s discuss setting good targets. Perhaps a good question to ask is why set a profit target? By setting a target, you establish a preset level of profit, if and when the market moves to your target. The classic problem with setting targets is where to set them. If you set them too aggressively, you may be accused of being greedy by setting a profit target that is too large. So the trick to setting targets is to look at current support or resistance levels to pick a good, realistic level because perfect levels only happen in hindsight. Also, the concept of setting a target has a realistic risk to reward ratio, say 2: 1 risk to reward. Many traders set up a trade based only on the risk to reward ratio. This can set up unrealistic targets that are just too aggressive. While understanding your risk to reward ratio for each trade is important, you shouldn’t set up your trade based solely on the risk reward ratio. To set up the best targets, establish a good resistance level in an uptrend or a good support level in a downtrend, then move the target just inside this resistance or support level. Also, Fibanacci retracement levels can be helpful in setting these realistic levels. So look to the charts for the best target level using support and resistance or Fibanacci and not just an arbitrary risk to reward level.

Setting Stop Loss Orders

One of the most important things you can do in your trading is to keep your risk acceptable. The way to do this is by using a stop loss order. This will make sure that you keep the risk in the trade limited to an acceptable level. While there is no hard and fast rule about where to set your stop loss orders, just inside the relevant support and resistance levels is where you want to set it. I have discussed risk management, which is really just understanding, quantifying, and controlling your risk to a certain fixed percentage of your overall account. The initial stop is the key to limiting that initial risk in any single trade. It is best to keep your risk limited to no more than 2% of your account on any one trade. If you trade without an initial stop loss order, you leave yourself completely exposed to market risk, which is unacceptable. So it is critical to your long-term success that you ALWAYS use an initial stop set just inside support or resistance levels, with no more than 2% risk.

To summarize, the key to low anxiety trading is to always place structured trades with good targets and stop loss levels to give reasonable targets with limited risk based on support and resistance levels and limiting risk to less than 2% risk.

The Fed announced that it will continue to taper the cash infusions it has been putting into the US economy gradually weaning it off of the government’s massive economic welfare program. The Fed has pumped billions of dollars into the economy to artificially prop it up sending the stock market on a torrid bull run that rivals any of the bull runs in its history. I am not saying that it has been a bad thing though there could be some very severe consequences in the future; however, I am saying that it is something for us to take note of and it is definitely something for us to learn from for the future. The aggregate of all of the experiences that we have in life are what makes us the people we are so all of the experiences that we have in the markets as investors and traders are what makes us the kind of investors and traders we are. That being said, what lessons have we learned from all of this? By “all of this” I am referring to everything that has occurred since 2008 when the credit bubble and the real estate bubbles burst. Can we say that we are the same type of trader or investor that we were before the bubbles burst or did these events modify our behavior and thought process in some way?

I wonder if the trading style of a lot of short-term traders didn’t become more defensive and possibly more conservative. I also wonder what long-term buy and hold investors think now with regard to their investment approach. The S&P 500 reached an all time high in the first quarter of 2000, which was followed an approximate 50% correction. That same high was not reached again until the fourth quarter of 2007 where it was again followed by a correction but this time the correction was greater than 50%, this was when the aforementioned bubbles burst, the major world economies went into recessions and the Fed began propping up the economy which has manipulated the markets. It took until the second quarter of 2013 for this level in the S&P 500 to be reached again, which has since been surpassed by approximately 24%. So what did we learn from this? I certainly can’t speak for everyone but what I learned is that a buy and hold investor from back in the mid to late 1990’s that saw the nice market dot com run would have had to endure the subsequent drop taking a total of 7 years just to get back to the same level. When that level was reached and the next market drop occurred it took six years to recover to the same level for a total of 13 years to once again break the 2000 high.

The thing that may be the most damaging in this scenario for an investor that is employing a long term buy and hold strategy is the opportunity cost for each period that it took to recover from each of the approximate 50% corrections. Money that was sitting in long term buy and hold accounts over each of those periods of time or over the entire 13 years could have been invested in other far more productive areas earning a far greater return. Many investors may try to justify holding for that period stating that at least after the second cycle the market has made a nice return but a 24% return over a 13 year period is less than 2% per year and far less than impressive. When it comes to a long term buy and hold strategy some of the most important factors around the success or failure of the investment is what price the investment was entered into and what price it was liquidated at. There is a common belief among some long term investors that these factors are not important because of the long term nature of the investments but that really isn’t true. If a long term investor had to liquidate funds during either of the downtrends and especially at the bottom of either of them it could very possibly have been devastating.

Getting caught as a long-term investor in the first downturn was tough, but getting caught in the second one too may be a little questionable. When the problems in the real estate and the mortgage markets first started to be reported in the news in the summer of 2008, this probably should have been sign of what was to come in the stock market. Shortly thereafter, the stock market began to fall, but there was plenty of time to exit the market before too much damage was done. Holding on for the entire ride down and then back up hoping to get back to even was unnecessary, just like it will be unnecessary to hold on for the next downturn and the subsequent ride back up.

Today we are going to look at the chart of Silver to see where there may be some possibilities to place some trades. As with any chart, we can always find places where we may want to buy and where we may want to sell. By looking at multiple time frames, we can see where the best entry may be located. In our assessment of Silver, we will begin by looking at the daily chart.

Take a look at this longer-term chart:
There are a few things we should be pointing out on the chart. First, you can see the green up arrow, which represents the most recent bullish trend. This trend started around the beginning of June and has continued to the present time. The second thing you can see is the area of support and resistance, as shown with the green and red line. This area of price action between the lines is where the price action began to slow down and consolidate. Today we saw the price breakout above the resistance area suggesting that the momentum will continue to be bullish for at least the near future. With this breakout and move today we can now look to the lower timeframes to see where there may be an entry trigger setting up.

In the next chart, you can see the 30 min. timeframe where the price may be setting up for an opportunity to go long.
In this chart, you can see that we are currently in a bit of a pullback. This pullback occurred after the breakout we saw on the daily chart. The red and green lines on this chart show us the pullback and where we might be looking to go long if the price move back above the red (resistance) line.

We could even go down to a shorter-term chart if we wanted to take some shorter-term entries but for now we will stop at the 30 min. charts. In addition to placing a long trade here, we could use other indicators or price action to give us areas to short silver. Right now with the charts so bullish, we would be taking a fairly strong counter trend entry if we decided to short this right now.

The goal of being able to evaluate a chart is to help us identify the best possible place to enter the trade. Make sure you are looking at the charts properly so you can best determine the trend, support and resistance, and where the current momentum is headed. By knowing these things you can get a good idea for where to enter and the direction we should be trading.

Even though we used silver as our example, using the same approach to the charts of gold or other ETF would work the same. The key is to find the best times to enter. Take some time to practice with this and use multiple times to help you identify these trading possibilities in your trading.

Generally speaking, gold is the most popular precious metal for investors, including silver, palladium, or platinum. Investors have used gold as a part of a portfolio to hedge against inflation, risk and volatility. Gold has been used as a “safe haven” to protect against market uncertainty, including inflation, market declines, and unforeseen instability caused by wars or by natural disasters. But because of the high price of gold it is difficult for many investors to take advantage of this investment. There is a reason that the best things in society are commonly referred to as the “gold standard.” So if you are going to invest in gold as a part of your portfolio, what is the best way to do so; invest in physical gold, gold-mining stocks or gold funds? Well, depending on whom you are speaking to or what people are selling the answers will differ. I don’t have an axe to grind in this particular area and there is a case to be made about investing in any of these types of investments. Some people who advocate physical gold have a good point about long-term security; however this is a very expensive and more complicated type of investment. This brings us to a simpler way and maybe a better way to invest in gold – Gold ETFs (Exchange Traded Funds).

Gold ETFs have several advantages over physical gold. These include ease of entry and exit or both for convenience, and liquidity. These are general advantages to ETFs over investing in any physical commodity. These ETFs are traded just like stocks with all the advantages of trading that come with trading stocks, including using stops and targets, using limit and stop orders and trading options. Also with Gold ETFs there are several choices from several different issuers. These include ETFs that are based on physical gold, gold-mining stocks, and also leveraged ETFs, double and even triple leveraged funds.

To me the main advantage of any of the Gold ETFs for anyone who wants to invest in gold as a part of your portfolio for either growth or a hedge against negative things, you can apply the ETFs to good trading strategies and also apply good trading risk management rules to your ETF trading. Whether the overall gold market is going up or down you can take advantage of the natural ebbs and flows of the gold market to trade either long or short. There are many factors that drive the commodities and precious metals market long and short, including inflation, international markets, and mining international supply. These ETFs can be traded with standard technical analysis tools which can be applied to the charts to help determine trend and support and resistance levels like other investment instruments.

Gold ETF investing is the of the easiest way to invest in gold, remember that any investing has a measure of risk, and investing in commodities and especially precious metals can have even more risk, therefore you should only invest in gold in any form a portion of your overall portfolio and use solid risk management principles. Risk management rules are important to any investing; however it is even more critical in the precious metals investing.

Whenever we look at the market we are trying to determine what the buyers and sellers are trying to do. If there are more buyers than sellers, we generally see the market moving up and if we see more sellers than buyers, we see the market go down. Buyers and sellers are what causes the markets to trend and where we will see areas of support and resistance.

When looking at the charts we try to focus on identifying what the trend is and where we are seeing price support and resistance. Knowing that these areas are not just random areas can help us see why they act like they do.

In a trend we are seeing the buyers or seller become more dominant in pushing the price higher or lower. In the chart below you can see that as the buyers become more dominate that price has a bigger up swing than the move down that the sellers are causing. Because of the dominance of the buyers, the price will continue to move higher on the up swings and move down less on the down swings.

The reverse would be true for a down trend. This type of price action will continue until the balance of power switches and the sellers become more dominant causing the price to trend down.

In addition to buyers and sellers causing the price to trend, they can also cause the price stop moving and begin to reverse. Buyers will cause the price to be supported and move up off of an area while sellers will cause the price to be resisted and move down off of an area. In the picture below you can see how this looks:

As the price begins to drop, the buyers will become more interested in buying. Once the price reaches a certain level the sellers cannot continue to push the price down any longer and the buyers will cause the price to move up. As the price moves up, sellers will begin to come in and start selling. As the selling continues the price will drop and begin to move lower.

This type of price action with the trend and support or resistance will continue day in and day out as the struggle for control continues between the buyers and sellers. This is an important concept as this struggle give traders the opportunity to look for buying and selling opportunities.

As you begin to understand the fight between the two sides, you will be able to better spot opportunities to buy and sell as the price action swings from high to low. Take some time to look at how this works in the charts you are trading and see if it can help you better identify the trend and those areas of support and resistance where we will be looking to buy and sell. As you do this you will not only see why is happening but will better understand why it is happening.

In this article, I’m going to show you how to risk as little as $25 to make up to $100 by trading the markets completely the opposite way compared to how most people attempt to do it.

This isn’t any kind of ‘get rich quick’ scheme. As you’ll see, it’s all about simple mathematics and making a 180 degree shift in how you go after profit. I’m going to give you the simple formula so you can try it out and prove to yourself that it can work. OK, ready? Here we go.

Let’s say you have a $500 account and your goal is to make some money trading the markets. Well, here’s the question that goes through most peoples’ heads before they place a trade:

“How much money can I make?”

To be fair, that’s a natural question. However, the problem with that question is that it ignores the #1 key to successful trading: risk management. So, a BETTER first question to ask would be:

“How much money should I risk?”

THAT is the key question. You need to control risk and protect your account first. And when that’s in place, THEN you can go after profit.

So what percent of your account should you risk, exactly?

Only 5% (or 2% for larger accounts).

But there’s a little more to it than that. So let’s take a look at how to do this by using my simple risk calculator.

First, you just calculate 5% of your account size. For our example, we have a $500 account, so the maximum amount we’re willing to risk per trade is $25. That doesn’t mean we’re going to TRADE with only $25 – we’re actually going to trade with much more, as you’re about to see. But we’re only RISKING $25 per trade.

Next, we need to figure out the risk per share of the stock we’re going to be buying. And to do that we need to know the Entry Price and our Initial Stop Price. So let’s look at an example to do that.

Here’s a chart of WFT – Weatherford International.

Say that our trading method tells us to buy right here where this green arrow is pointing, at $17.54. But before we actually place the trade, we need to know the price of our initial stop, which is the lowest amount we’re willing to let this stock drop before we get out, in order to minimize any potential loss.

In this case, let’s say our trading method has us set the initial stop at $16.65. So far so good?

OK… Let’s pull up our risk calculator again:

We already know the maximum we can risk per trade is $25. The next step is to plug in the entry price and the initial stop price, and calculate the difference, which is $0.89. That’s the maximum risk per SHARE.

And when we divide that into the maximum risk per trade, we get the maximum number of shares. In this case, it’s 28.

So we go ahead and buy 28 shares at $17.54 per share, for a total of $491.12. If the market drops to $16.65, we get stopped out for a MAXIMUM LOSS of only $25 so we can come back and try another trade again later when the conditions are right.

But if the market moves in our favor as it does above, we keep moving our stop order up to lock in profits as quickly as possible, until it’s time to exit the trade, which happens in this example at $21.17.

Once the market reaches this price, we have a profit of $3.63 per share if we subtract the purchase price of $17.54 from $21.17. And if we multiply $3.63 by the 28 shares we bought, that’s $101.64 of profit at this point, slightly exceeding our goal of risking $25 to make $100.

Here’s a chart that summarizes everything:

It’s as simple as that.

Now, of course, not every trade will be this good. You WILL have losing trades. But by following this simple formula, you can dramatically reduce your losses by minimizing your risk every time you place a trade. This is how the world’s most successful traders do it, and this is something you can start doing RIGHT NOW.

So, I hope you found this article helpful, but more importantly, I hope you test this technique out for yourself so you can see how powerful it can be.

Of course, to truly maximize the impact of this approach, you need to have a good trading method, and I’d like to give you one of MY very best ones to try out for FREE. It’s called the Trading For Income System, and it reveals the step-by-step trading rules you can use to risk as little as $25 to earn up to $100 by trading the safest stocks that offer the most profit potential.

I’ve sold the training materials you get as part of the Trading For Income System in the past for as much as $500, but because I want to prove to you that I have the best system on the planet, I’m going to give you everything for FREE for a limited time.

I’m willing to do this because I know that if I put by best foot forward you’ll probably come back to be for more advanced training later on.

So, just go here to get your free copy of my Trading For Income System.

Good Trading,
Bill Poulos

The two most common types of market analysis are technical analysis and fundamental analysis. Technical analysis focuses on reading charts and using technical indicators. There are well over one hundred technical indicators to choose from, so finding the right indicator, or indicators, for a given situation can be a challenge and, once you do find the indicators that work, when the market changes, what worked in the past may not continue to work nearly as well in the future. Technical indicators are lagging indicators, so, of course, they can tell you where the market has been with the intent of predicting where the price action may go in the future, but they cannot predict the intangible factors that move the markets on a regular basis; they can only acknowledge them once they have occurred, which, in many instances, is far too late to be of any use at all.

Fundamental analysis essentially fills the holes in technical analysis. By employing fundamental analysis we can analyze new information that is coming out right now, in the moment. Technical analysis is, virtually, useless. When an event is actually happening, it can only tell you what happened when the event occurred, which can be useful for preparing for the next time the event, or a similar event, occurs. Fundamental analysis is also different than technical analysis with respect to its consistency. Where a specific type of technical analysis works, until it doesn’t, fundamental analysis will work on an ongoing basis because it flows and changes with current market conditions and events. Fundamental analysis consists of analyzing markets based on news events and other unpredictable events that can occur at any time of the week, day or night. Fundamental events can include such things as company specific events, industry-wide events, national events and international or global events. Some of the more common events are company or industry specific, which include a company’s earnings report, a lawsuit or a class action lawsuit against a company or industry, the death of a high ranking person in a company, takeover attempts, mergers or sales, a recall of a company’s products, government inquiries or probes into a company or industry’s business practices or something like a surprise technological breakthrough that can transform a company or an industry. National events can include interest rate announcements, announcements around the government’s economic reports, which gauge the general health of an economy, the death of a prominent government figure. Global events can include wars, civil unrest, assassination attempts or successful assignations or government coups.

Fundamental events are what cause the regular gapping that we see from day to day in stock prices. When an event occurs that will affect the price of a company’s stock while the market is closed for trading, regardless of if it is good or bad for the company, the stock price will correct itself when the next trading session begins jumping to a new level based on the new information. This is why so many companies will report earnings and other news after regular trading hours are over. If many of these events occurred during regular trading hours the stock price could be very volatile spiking and moving erratically throughout the trading day. The reason that we rarely see gapping in the Forex market, with the exception of the Sunday open, is because it is a 24 hour 5 day per week market; the price action will constantly correct itself for fundamental events as they occur throughout the week. We can see a lot of volatility at different times based on different events with the reason being that the price action is immediately correcting itself based on the most recent information.

Many fundamental events such as government economic reports or company earnings are predictable because they are scheduled; it is no secret when the event will occur we know that they are coming out before they are announced. Since we know when the announcements will come out we can plan for them, we do not need to know what the result of the announcement will be we just need to know when the announcement is scheduled, as long as we know the schedule we can come up with an action plan around it. We could follow what the so called experts predictions are around what the results will be but they are incorrect at least 60% of the time so following them will typically lead to a loser. Before the recession in 2008/2009 the biggest economic news announcement would always be the interest rate announcement. Everyone would wait for this information and when it was presented the markets would react accordingly sometimes in a very violent fashion but typically with at least some degree of reaction. When interest rates in the US reached near zero the big announcements became any jobs related announcement and any announcement that gauged the health of the real estate market. The reason being that these two sectors of the economy needed to get healthy before interest rates would move so as these two sectors improve the probability of a rate hike increases. The main reason that investors and traders watch the economic events throughout the month is to help them gauge what may happen with short term interest rates.

The types of analysis are not mutually exclusive in fact they complement each other nicely. Using them in conjunction with each other to me is common sense, if you only use one type of analysis you are limiting yourself and only seeing a portion of what is actually going on in the markets. Investors and traders need every advantage possible so by using all of the information and resources that are available you will increase your chances for success.

Over the last few weeks we have once again seen new highs in the equity markets. Whenever we are setting new records there is also the possibility of additional volatility caused in general by the uncertainty of the new highs. in the market. Volatility often comes from uncertainly. How can we quantify or measure this uncertainty? This is where the VIX volatility index can be used, the VIX index is also often referred to as the “fear index.” The VIX index come from the Chicago Board Options Exchange and is officially called the Market Volatility Index, and is a popular measure of the implied volatility of the S&P 500 index.

What is the VIX index? The VIX measures the implied volatility of the S&P 500 put and call options. When the VIX index has higher VIX values, this is generally associated with a larger amount of volatility in the market, as a result of investor fear or uncertainty, while lower values generally correspond to less stressful, less volatile, times in the markets.

During periods of market uncertainty, the VIX will often spike higher, because there is an immediate panic demand for put options to be used as a hedge against further declines in the overall stock market. During more bullish periods, there is less fear and, therefore, less need for stock investors and portfolio managers to purchase puts. This is why the VIX is often referred to the “fear index” because at times when the index rises because of market volatility, the market tends to be in more of a panic and often the panic leads to a market sell-off. The opposite is also true that during times when the market is calmer which is either ranging deliberately, or in a steady trend, the volatility is generally lower, therefore the VIX will be lower. This inverse relationship in the market is illustrated by the charts below.

Figure 1: S&P Index Chart for 2014

Figure 2: VIX Volatility Index for 2014

Note that as the VIX spiked up in Jan and was volatile until April then started a down trend through this week, as the S&P index since April has been in a steady up trend. In the charts shown, generally speaking, when the markets are more uncertain, the VIX is higher and the S&P has moved lower. After this selloff or panic is over, the market is generally lower and may be a good place to buy as the market may rebound or move higher. As this happens the VIX will often move lower as it has over the last several months with less fear in the market. Generally speaking when the VIX is below 14 and moving lower the market is more deliberate and better to trade.

So in conclusion, when the VIX is high or moving higher the market is more volatile and is a good idea to hold off trading until more deliberate trading conditions are present. This is often when the VIX is lower and we see the market in a more calm or deliberate trend. There has been minimal fear in the market over the last several months which has made for some nice trend trading, all while the VIX has been below 14.