G’day Traders,

If you don’t read past this paragraph I want you to take one clear point. Correlated Signals – such as Friday – mean higher probabilities of good moves. You should also read the notes on risk in my bottom section.

One of the things that is a big disappointment to me is when I see something like what happened on Friday. You see, when all the markets turn like they did I hear the majority of clients disappointed in giving up profits. You see this kind of move – where just about everything goes against you is the markets’ biggest trick!
Usually when people take a break from trading it is right after something like this. It tends to shift weak mindsets and the voices in your heads start up.

As a trader, if you have a good mindset, you will be looking at the opportunities. But what most traders will do is look back at the trades they just exited and those who are new to trading will be focused on the maximum profits they had.

A good trader, with a good mindset looks forward. What does this mean? Well I think – what do these new signals mean? You see my great disappointment is not with what happened to trades on Friday. It is that clients don’t take the new trades.

One thing I teach at an Advanced is that when you get a strong number of signals across a range of markets – then the move has strength. There is an underlying strength that has moved everything.

Usually when markets have this strength it continues.

This is rare and so usually when this occurs traders get down on their trading. They exit their trades and don’t take the new signals. They are focused on the past. I look at what happened (and yes I am disappointed in my profits) and focus on the next trade. I believe these trades are some of the best you can take.

You need to learn from Friday. It doesn’t happen often but it does highlight risk. You need to read the relevant section for you at the bottom.

The US S&P500 +1.66, Brazil +2.69, European top 500 +0.59 and UK +0.89%. Nikkei +0.95, China +0.25 (again worse than developed markets) and ASX +0.32.

A note on the service we are offering to hedge, protect and invest. Some of you may say “oh, Scott is wrong – look the markets jumped on Friday”.

My response: “I see significant risk in the markets. Friday doesn’t change anything and the service is not about exiting you out of your investments. It is there to protect you if there is a fall and the service is designed not to cost you if there isn’t a crash”.

Bernanke did have a speech, which sent the market down and then back up. To me it changes nothing, which is why I am focusing on the signals – because the market did react. The S&P500 did bounce off support levels. Strangely (to me) the T-Bonds broke down. This is a confirmation that signals are good.

I wrote about Gold on Twitter and why it’s relatively a good buy at these prices. I believe the fall in T-Bonds was because the market took the speech as a sign the Fed will do more to create inflation. I don’t agree with the markets reaction that it will do anything though, because they have been trying to do this for at least the past couple of years. There is an argument that people are withdrawing money from the markets and holding cash, ready to buy in. I believe they are taking it out in droves, but I don’t believe they are going to put it back in. I believe many are spending it and some are paying off debt with it. The people with the money are retiring and I don’t think they are about to put it back into the markets.

On the bullish side companies are borrowing at the lowest ever rates and this does help their bottom line substantially. Also the US government is giving heaps of support to big companies to hold up the markets – the problem is they are doing the opposite with small and medium size business and that is what employs people.

Bottom line is – you can make a case for the markets to rally from here.

ETFs – If you are long equity ETFs check your stops and make sure they are not ages away. If it breaks the lows of this year do you want to be in?

Options – I am going to look this week.

Information for Beginners – Risk – if you are live you should be trading minis and if you are trading Forex only keep it to maybe four different pairs – just look at the model portfolios. If you are going to go live and are ready, today is probably a great day – if you have read what I wrote above and keep risk low.

Information for Intermediate – Risk – diversification is key. Also not to have too much risk in correlated products. What occurred Friday is a good acid test – did you have too much risk on? You need to take this onboard and adjust as appropriate, but now is the time to keep trading. You just do not want to take big hits. Look at the products, like cocoa, that kept trending.

Information for Advanced – Risk management is the most important skill a trader can have. This is a great wake up call because if the market crashes there is going to be some volatility and strong correlations. You want to be trading to take advantage of this. These signals may not work – it may be the following one and I think this is the move we need to have (the shakeout) and then we may see the big moves.

Trader Term of the Day – Aggressive Strategy

An investment strategy with an above-average risk tolerance, with the expectation of above-average returns. Aggressive strategies usually favour the purchase of stocks of rapidly growing companies, buying on margin, and options trading.

Scott Goold

Head of Lifestyle R&D