Well I always said that September brings big moves, but I didn’t really expect it to happen on the 1st of the month. Last night we got some significant moves, but before we get the really big moves, let’s review the last few days as they can provide an invaluable lesson for many traders.

Over the past couple of days some traders have emailed in saying that they read my update and have made big losses recently on the JPY pairs. A few even admitted to taking all four JPY pairs, had too much risk and lost substantial amounts of their accounts.

Besides saying that this horrifies me every time (and it really upsets me when I hear a client has lost money) it is really bad to hear because I have deliberately put an emphasis on risk over the past week. On the 30th I even made the point of saying to beginners to just trade four pairs and focus on risk.

Let me make this very, very clear:

These markets are getting volatile and when they break they should really go.
Volatility means there is extra risk around. Therefore everyone should focus primarily on risk. Risk per trade differs but >5% on a trade is suicide and it should be much lower.
Tight stops won’t work as you get stopped out of good trades and in volatile markets like this you need extra room.
Beginners should reduce what they trade down to a diversified range of products. That means 1 JPY pair and, as I said, maybe just four forex pairs plus whatever commodities and you should be trading the minimum amount.
I see too many traders start off risking too much and trying to make it big in their first six months. Even in good markets you should be asking what is the worse case scenario here. By the way, according to my rules these are good markets and I will explain that further on.

Bad risk management kills accounts, not bad markets or bad signals.

The US S&P500 +2.95, Brazil +2.96, European top 500 +2.88 and UK +2.70%, Nikkei +1.17 and ASX +2.08%… China was actually down – should jump today.

On Twitter I spoke about the market looking very strong – a good thing for Forex and T-Bond traders. Treasuries fell, but bounced off critical support. This is the market I am watching.

On Treasuries I tweeted an article about bond yields being lower than stock dividends. Fascinating to hear that this was the norm prior to 1958 when the US markets were dominated by deflationary periods. For 50 years this never happened again until 2008 and now it is looking more like the norm.

What does this mean? A primary shift in the way investing is done and the markets seem to get it. I cannot emphasise this enough and the sad thing is that even the investment community doesn’t understand what is happening. I would not be surprised if we see a 50 year period of deflationary episodes and I will touch on this tomorrow at the Summit. I can see this occurring in the Australian real estate market too and there is an article there on the US real estate market.

Just on the Summit I won’t write a weekly tomorrow. I am simply too busy… but of course will try for a daily.

I also tweeted that a Chinese central bank analyst predicts a sharp Gold decline. Firstly, when I see an analyst predicting something I look the other way. Secondly, when a central banker says something I know they are scared about the opposite. Thirdly, when a Chinese official says something they are usually saying it to take advantage of it. So this article should read – China wants to buy more Gold and sees significant risk of other assets they own lots of (such as USD assets) devaluing. I know… I am VERY skeptical

Employment: The market didn’t care, but we got seriously bad employment data last night. It was the first drop in the private sector this year. Forget the magnitude and what the markets say – this is scary because if there was even a small recovery we should see job gains.

The big number is out tomorrow – US employment data!

Now with the rally my call of 1100 on the ES not being broken this year looks shaky. However, I believe this employment data could be horrific for the market. Therefore, another swing is possible. Bernanke speaks today in the US, although I would say there is a possibility the markets won’t do much. Truth is though, I would have expected that support in the ES to have been broken already so I believe I am wrong on that call.

Oh – why do I say these are good markets?

I am looking forward:

• There is a lot of economic news, debates and uncertainty. We usually get good moves out of this.
• The ‘energy’ in the market is increasing – it just hasn’t focused in one direction.
• September is traditionally a month of really nice moves (although the lead up can be difficult).
• October is usually better than September.

It is just important to focus on RISK first – so you can take advantage of good markets.

ETFs – The rally last night was very big, but it is in the range and so means very little.

Options – Awesome rally – time for some BECS trades. Options Trading Pits is scheduled to start tonight I believe for those on Fast Track.

Information for Beginners – If you are a beginner you should be focused on keeping things simple and risk low.

Information for Intermediate – A nice move, but don’t get excited yet – it is in the middle of a range. Be diversified and focus on risk.

Information for Advanced – The critical level I am watching is 132 on Dec T-Bonds. If the market breaks this my 1100 ceiling is probably finished. The T-Bonds are really moving a lot and I wonder if this means it is the top of this market.

Scott Goold

Head of Lifestyle R&D

An observation on diversification by Endre Dobozy

I regularly receive questions about how best to diversify my investments. The logic is that you shouldn’t have too many eggs in one basket, a theory that works when everything is going up. This is further reinforced when everything is trending up on a lag, as they don’t all rise at the same time, giving the illusion that diversification is working because when one asset class is down a little another is rising. However, this isn’t likely to be the case over the next decade, where all assets are likely to fall partly because of deflation and deleveraging, but also due to reduced demand from the peaking of the 39-40 year generational cycle. So, by diversifying your eggs into lots of little baskets all you end up with is lots of baskets losing value.

Once net worth peaks at around age 64, investors shift their focus from stocks to bonds as these are used to provide income during retirement. From this point on they spend less and make do with less. They effectively reduce consumption and begin the process of spending down the money that has been accumulated over a lifetime of work.

If you want proof that people spend less on consumption as they age just take a trip to a retirement home (also referred to as God’s waiting room) and look at how many new cars there are that belong to the residents. Look at the furniture and the money spent on flat screen TVs and other electronics. I guarantee you won’t find many. The only area of consumption that increases in this age demographic is spending on drugs, which doesn’t peak until age 81.

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Trader Term of the Day – Tangible Asset

An asset whose value depends on particular physical properties. These include reproducible assets such as buildings or machinery and non-reproducible assets such as land, a mine or a work of art.

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Yesterday was surprising. Firstly, for the positive news and secondly, for the lack of reaction. This just shows you what the markets can be like in Summer.

I posted some interesting articles on Twitter last night. A little bit of light reading, but as you may see at the Summit being able to know how to act on that information is the important thing.

On the housing data – that should have pushed the market higher as it conflicts with the really negative stuff from last week… or does it? For some reason house prices held up in US cities recently. It’s the low number of sales (not the price) that had the markets worried last week. Still it was good news and I thought the markets would lap it up.

Why didn’t they? I think some are waiting for the Fed to do something and so positive news doesn’t really help their cause. On the flip side the overwhelming majority of economic data shows the US economy is in big trouble and I don’t think the Fed can really do enough with what they have – they know it – they need to do things wisely. One article makes the case that even buying 1 Trillion worth of Treasuries wouldn’t do much.

Commodities are where the big moves were made and I made some tweets about this. When fundamentals come into it and the market reacts it could mean more chance of a trend, so I like to watch these markets. Corn, Sugar and Crude are three, with the other one Copper.

Copper is the market to watch to give you an idea on world growth, especially emerging markets. Therefore if markets fall and I am looking for a buying opportunity I will be watching Copper prices. Copper, if you check the weekly, is currently telling me that we are not going into a crash – so there is some conflicting information – which I love. It’s something no one is talking about – you are getting it here first.

The US S&P500 +0.41, Brazil 1.38, European top 500 flat and UK +0.45%. Nikkei is up and ASX up a lot in early trade.

ETFs – Have you thought about India or Turkey? Both have great internal demand. When I compare China and India – I think India has a much younger and growing population and is not as reliant on manufacturing overseas products.

Options – It is brilliant if you are trading Options right now if you also trade Forex and Commodities.

Today’s Top Tip

The 2010 Lifestyle Summit will be held from September 3-5 at Royal Pines Resort on the Gold Coast. It doesn’t matter whether you have limited time, a limited trading budget or just don’t know how to build momentum, the speakers and many of the attendees at The 2010 Lifestyle Summit have already slayed those very same dragons and will generously share their experiences with you.

Don’t miss out – visit http://www.lifestylesummit.com to register!

Information for Beginners – Quote from someone in the office “how can you stop trading after three losses – usually it’s just about to go and they miss out”.

Information for Intermediate – We are in September now – finally. So the odds are increasing for there to be some big moves.

Information for Advanced – My trigger point on the downside is 1035 on the ES. I am watching this and for a drop in Copper – two triggers to increase my exposure to downside profits.
Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Temporal Method

A currency translation method under which the choice of exchange rate depends on the underlying method of valuation. Assets and liabilities valued at historical cost (market cost) are translated at the historical (current market) rate.

Last night I watched a stockbroker on TV being so positive about the markets. I was thinking – wow – these guys really go on an emotional ride and if you are on TV you are probably pretty good right?

Well it saddened me that this industry is SO reactive to a point where their emotions are linked to whether or not the ASX goes up or down.

That was when I went to bed… I woke up and looked at the market and though…. Oh no!

This wasn’t for my trading, but for yours. I feel like I really need to give you guys confidence because I knew some of you would be down after Friday. I know that the probability of signals like yesterday’s turning out to be nice trends is high because they all turned at once. Therefore, you need to trade this with the correct risk rules.

In my trading I know that all this stuff on the economy is critical and that we are going to get something positive said and negative data. This is positive and I expect the markets to go choppy before they move. The best moves come out of this, and this is what I like to see because it tells me “the chances of a big move are high”.

Now when I look at the signals, they haven’t crossed again so nothing really changes, but from an emotional point of view some of you must feel a little battered, especially if you were looking for confidence after Friday.

I will talk about the markets later, but one thing that I now feel like I understated yesterday is risk management. Or did I? I am not sure, but once more if you are feeling battered then I believe it is a sign you have too much risk on the table.

If you asked me if we got new signals tomorrow – “Would you take these trades?” I would say yes. This movement in the market is what I expected. The market is at a critical level and there is a lot of bad economic news out there after good earnings (and I have talked about this before). Bernanke’s speech was a good one for the markets. The issue is that there is no follow through and I would I have expected to see this.

So based on this, what does it mean as a trader?

• The market is eager for positive news, but profits are quickly taken.
• Investors see high risk so they don’t want to be over exposed.
• Focus on risk management.
• You may get hurt a few times before a big move…

Ok – I have to expand on this point. Successful traders take hits and minimise the damage, but then when it happens they take advantage. Taking hits is part of what trading is about. The thing is, you can’t change your style just because of this. What you want to do is take the hits and make sure the damage isn’t major, so that when it breaks you are in and take advantage.

If you change now then you miss out – all the hard work of the last few days is undone. You also have to think with all the news out there that a big move is more likely than usual. The problem that works against us here is the time of year. It often starts a couple of weeks into September, but I don’t want to miss out.

The US S&P500 -1.47, Brazil -2.02, European top 500 flat and UK +0.89%. Nikkei +1.76, China +1.97 and ASX +1.89 (down 0.86 in early trade).

Sorry – no tweets last night. Nothing much happening – I thought about mentioning the data that was ‘negative’, but I didn’t think it was that bad – and nothing was happening. That is why I was shocked this morning. It is the market reaction to news that is important. I think the market was desperate for something positive and reality is setting in on the equities – but they never crossed.

On the bonds – have you seen how far they have gone? Check out the September weekly. Now remember the biggest buyer / owner of treasuries is China and the ‘intelligent’ people decided they didn’t want their money so now they are sellers.

Yes – the Fed can buy however much it likes and that puts Gold back up as the best investment right now. This is huge for Forex and Commodities. The USD should weaken, especially against Commodities (over the long term), but a crash may initially send Commodities lower.

As for the USD/JPY – the Japanese announced something to weaken the Yen as it is killing businesses, but it wasn’t what they wanted and it turned on a dime. I think it is a little bit silly because the Japanese debt level is dramatically larger than the US, and the US has a much bigger gun – in other words the Fed is more effective at devaluing the USD compared to the BOJ devaluing the Yen.

They should play smart and find another way to attack. Having said that the JPY is super strong so I wouldn’t be surprised if we get a rally here in the USD/JPY. If the markets fall though this should go down.

I think Forex traders should be trading a JPY pair as we could get some nice moves. There is more and more focus on its strength (look at the weekly), but the funny thing is – if there is a crash, where will the money go with both the JPY and Treasuries so high? I assume it would flow here initially, but I think we will see the end of some correlations early on.

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 net short on equities so I will look for some BUPS. If you only trade Options be very cautious doing this.

Today’s Top Tip

The 2010 Lifestyle Summit will be held from September 3-5 at Royal Pines Resort on the Gold Coast. It doesn’t matter whether you have limited time, a limited trading budget or just don’t know how to build momentum, the speakers and many of the attendees at The 2010 Lifestyle Summit have already slayed those very same dragons and will generously share their experiences with you.

Don’t miss out – visit http://www.lifestylesummit.com to register!

Information for Beginners – The fact is that at a time like this you are going to have some losses. This is part of trading, but you should never change your trading style because of this – you just need to adjust your risk. When the chance of a big move is high, so is the chance you are going to get into the wrong trade more than once. You’ve got to make it count when it goes.

Information for Intermediate – Patience is needed here. Diversification is important too. If you missed that short on T Bonds you may want to take it a day later – at a higher price with lower risk.

Information for Advanced – I believe the markets are trending generally, but you have the skills to determine that. Do not second guess this analysis because a couple of trades didn’t work.

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Back Testing

Testing or optimising a strategy based on historical data and then applying it to new data to see if the results are consistent.

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

Firstly, I have to say that many stockbrokers seem to have their heads in the sand. I recall late 2007 when the markets were already moving down. They said it would come back. I said move into safe, liquid assets like cash. Every stockbroker I have ever worked with has this idea that stocks are a good investment. I still speak to them and they are still saying that. It’s ridiculous when there are so many risks out there.

They say they want to help you, but they still want you to own stocks even if you believe the risk is crazy. No wonder investors hesitate. They think “Oh, he is a stockbroker so he must know”. I have used some that were knowledgeable, but that was years ago and I was lucky to be strong-minded because most of their best recommendations turned out to be duds.

I saved one of our staff in April after they had been recommended (by someone who worked for us) to buy equities. I got her out – right when the markets started to fall. The vast majority in my opinion are just salespeople who know the lingo. They don’t know stocks. They can’t tell you with any accuracy what will happen to the economy.

Yesterday I really thought about things… the markets and you – our clients. I thought, wow, if this market does fall (and I expect it to halve from here if it did) what would happen to our clients. I recalled that in 2007 I got a few clients to protect their portfolios, but in 2008 I felt ignored. At least I didn’t get any feedback from clients who did act. So I thought if I am so worried about it (and let me tell you I am not the only one) what could I do to help clients?

When I have said in the past buy these puts for each 50k you have invested that didn’t work. I thought about clients being confused about assets they own that they are locked in to and how they didn’t understand that they could hedge these easily. I also thought about how some clients don’t think we can help with stocks they own (and that they want to keep).

I thought – I own stocks and I want to keep them. I know how to hedge assets. I thought – it’s really easy to do, but clients simply need a little bit of help doing it.

So check out this free service I have come up with. Please watch the video simply because there is a risk of a market crash right now. When I say free, I mean free – there are no additional charges. We don’t charge huge amounts of brokerage – in fact our brokerage is lower than Commsec.

http://www.lifestyletrader.com/media/scottvidupdate26aug/

One last thing – do not wait to act. Make a decision to at least call and talk to Robbie.

On the markets last night we got lucky as the market bounced – after it was down again early. The talk is that Interest Rates are so low it’s not worth buying Bonds – surprise!

Just to show you how smart the stock market is, they thought that meant that Stocks are going to give better returns than Bonds. This is really an asset allocation question, but I mean really… Stocks and Bonds are not the only assets out there you can invest in.

I don’t care what anybody says… if bonds have such low yields and high risks then don’t hold Bonds. Many funds are saying “oh, we have to hold Bonds… we are just switching to corporate Bonds”. Others are saying “Well then, in comparison to Bonds, Stocks are cheap”. I think it’s crazy.

By the way, investors are getting scared of Municipal Bonds in the US too. Experts say when you look at the finances of these governments some of them make Greece look secure. Would you think lending to one of these Governments fixed for 10 years at less than 3% was a good deal?

So if Bonds are so bad why not Stocks? Well they may be right and investors may jump back into Stocks even if earnings are down because compared to bonds the return may be better. This makes the assumption though that the extra risk involved in owning Stocks is covered by the extra returns (if you count earnings as returns). I am in the ‘Cash’ camp simply because if I have to choose between Cash, Bonds and Stocks. I see too much risk in Stocks and too little yield in Bonds. So I would be playing it safe. Of course in our modern world we don’t just have three options.

Looking at what we trade, specifically Forex and Commodities, these types of markets are volatile and if there is one time you need to stick to your strategy it is now. Keep your stops wide or you will get stopped out of the best moves. Focus only on your strategy in a falling market.

Why am I saying this? Because I have seen clients change strategies and miss out on huge profits in times like this. I have seen beautiful trends and clients miss out!

Then I have seen the ones that keep it simple and follow the rules. These people make SERIOUS money in these times. Yes, it is a bit of a roller coaster, but the pay off can definitely be worthwhile.

The US S&P500 +0.33%, European top 500 -0.84, UK -0.90% and early today both Nikkei and ASX are up slightly.

Stocks – Stats show a 25% chance of a crash in the next 40 days. Do you want to take that kind of a risk?

ETF – Please take advantage of this service.

Options – As I said yesterday, wait until closer to expiry. Now may be a good time to buy some October Puts on the SPY. You can use these to hedge your bullish Option trades. Spend about 50% of the premium you would expect to get. You can then use them again in October.

Today’s Top Tip

Please watch my video update – http://www.lifestyletrader.com/media/scottvidupdate26aug/

Information for Beginners – Do not start changing things – especially now – it could be just about to work for you in a big way. You should be planning to go live in the next couple of weeks if you have done enough paper trading.

Information for Intermediate – Read my Tweets… last night I had some interesting ones.

Information for Advanced – Keep it simple and focus on risk – if so and the market tanks you will make money – I think the risk of the market tanking is well over 50% – lets say 60%

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Spike

A price high (or low) that is sharply above (or below) the highs (lows) of the preceding and succeeding days. Spikes represent at least a temporary climax in buying (selling) pressure and may sometimes prove to be major tops or bottoms.

• You are not going to make money by switching products that look like they are doing better.
• You are not going to make money by copying another trader’s strategy.
• You are not going to make money if you add more products just because what you have done has made you a profit.
• You are not going to make money if you take huge leaps up in size because in the last two weeks you have done well.
• You are not going to make money if you are not trading (especially in times like this).
• You are going to lose money if you just leave your money invested in equities in a bear market (this may seem pretty obvious, but do you have a net long position in equities when you think of all of your investments?).

One thing I am trying VERY hard to do is show clients that Lifestyle can help you make money across a range of different instruments and that something like ETFs has amazing advantages over more traditional products – that you can actually make money in a falling market.
For example, for Options traders owning some of SDS (which goes up significantly when stocks fall) is a really good hedge. Other investors can buy this to protect other assets that they own.
For ETF investors you have training in the LIS website on products that you should make money out of in a bear market. You can (and should) also be short some equity ETFs.
I always say if you want to make money in a falling market you should be trading Forex and commodities. There is extra volatility, no doubt, but if you stick to the products you trade and follow your rules you should be doing well right now and if the market really takes off you should do even better.
If you wonder why I am saying this, if you saw my Tweet on the state of US housing you would understand. US existing home sales are down over 25% year on year to the lowest level since 95! Yes – that is worse than the housing collapse that caused the last crisis.
US Government stimulus is no longer holding up economic data and the outlook looks bleaker than even I predicted. I can’t believe the market wasn’t down much more last night, but there is more housing data to come.
What does this mean?? Opportunities – if you are trading live and following your strategy!
The US S&P500 -1.45% European top 500 -1.68, UK -1.51% and early today both Nikkei and ASX are down.

ETF – I have said it – are you making money on the downside?

Options – I like to buy some SDS or some put options on the S&P500 if I am risking a lot on bullish strategies. It would be smart to sit back this month until later before expiry.

Today’s Top Tip

Check out what other like-minded traders are saying in our feedback section on the Lifestyle Trader website.
Information for Beginners - I said it – follow your rules!

Information for Intermediate - Read my Tweets!
Information for Advanced - Keep it simple and focus on risk – if so and the market tanks you will make money – I think the risk of the market tanking is well over 50% – lets say 60%.Hey… a market crash means great profits on Forex and Commodities - so it’s not that bad unless you let all your other investments halve in value.

Scott Goold
Head of Lifestyle R&D

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Trader Term of the Day – Relative Strength

In the stock market, a measure of a given stock’s price strength relative to a broad index of stocks.

Last night I was fortunate enough to hear Peter J. Daniels speak at a local church. Peter is 78, from a disadvantaged background and became a very wealthy businessman, a famous motivational author and the world’s highest paid speaker. An avid reader who meets regularly with UN and World Bank officials, last night he said that the greatest crash the world has ever known has started and it will be at its worst in September/October next year.

Do I agree with him? No, I believe the markets will drop below last year’s lows and down to about 500 in the S&P500. If Daniels is right it would have to be over a 90% drop to beat ’29 and that puts it at around 150!

The problems we both agree on is that the economy is in trouble, world government debt is out of control and the US empire is crumbling. He thinks the earliest we will recover will be 2020 and I think he is probably right. We both are very optimistic about what can be done.

The point is that you need to do something about it. You need to act if you want to be in front. No one became successful from not making a decision to act and once you make decisions you can always make adjustments. Just sitting there is not going to help under these market conditions.

Just because the speed of this collapse is slow doesn’t mean you are not losing money. Think of the highs in 2007 and how long it took to accelerate. No one even remembers that it was the start of what was to come.

Enough of predicting the future… if you want to know what to do about it then under the ETF Investing section on the LIS website there are some investment ideas.

The US S&P500 -0.40, European top 500 +0.68 and UK +0.76%. China flat. In early trade Asian markets are down with Nikkei over 1/2 a percent as is the ASX.

Twitter – I wrote something interesting yesterday about the gap for yields between 2 and 10 year US Treasuries – the economy has never contracted with such a gap and one of the Federal Reserve branches puts the likelihood at 15.5% of a recession within the next year. That is something positive, but then again that just shows me that:
1 – The market is scared of lending long term to the US government.
2 – The smart money wants to hold cash because this money is deeply concerned.

ETFs – Read the articles if you want some great ideas. Do it before the end of the month so you can be prepared to make proactive decisions.

Options – I think you may get this month in. I am not going to recommend trading bullish option writing strategies for this October expiration unless you are hedged.

Today’s Top Tip

Thinking about attending the exclusive advanced training in Austria in January 2011?

Visit http://www.lifestyleinvestorservices.com/austria/

Information for Beginners – Hey… a market crash means great profits on Forex and Commodities – so it’s not that bad unless you let all your other investments halve in value.

Information for Intermediate – Watch Sugar – they are predicting a record demand as crops are failing across the globe. Stick to the trends. Speculators are more bullish on Commodities at any other time than at October 2008 – remember that and what happened to stocks after?….hmmm great trading

Information for Advanced – I am often early in my calls. This has taught me to be more patient – if I have a view I must wait for a confirmation signal. Mindset is critical here because you want to be on the big moves.

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Stop Order

A buy order placed above the market (or a sell order placed below the market) that becomes a market order when the specified price is reached. Stop orders are most frequently used to limit losses.

IF you are an Options trader make sure you have no unwanted stock positions today – you need to contact us as soon as possible if you have a stock position, especially if you use Trade For You. If a client has an unwanted position and doesn’t advise us then we can’t be responsible for any losses.

Well I can’t miss talking about the Australian election today as it is affecting markets. The AUD is down due to the likely hung parliament result (but has rallied since the open). This was an outcome I thought likely and long term, positive for Australia. This is simply because US stock markets traditionally perform better when there is a mix of parties (when different parties control each house). I also believe changes in the way parliament works will be positive and because the three incumbent reps are high quality representatives.

Short term though, experts are predicting Australian markets will suffer. Long term I think what is good for regional Australia is probably good for the economy.

On Twitter I talked about a few things:

- US Real Estate and Foreclosures. There are a couple of things here and one is that it’s being written about. This tells us that it is moving to the front of people’s mind and a lot of houses have to be sold by banks. This means watch the US real estate ETF, which is still not short.

The choppiness is a sign to me and a break out on the downside could have horrible ramifications for the economy. Also, it is a good indication of what could happen in Australia and I think after a real acceleration in prices it puts me on edge. Accelerating prices in a bad economy often points to the end of a bullish move.

- The ECB comments are really negative. Seriously when you have someone like Weber saying this kind of stuff it has to affect confidence and it hurt the Euro, Oil and stocks as people moved to the USD and Treasuries.

- In Sugar, India may restart exports and Sugar is at five month highs. This means to me “stay long” because if the market keeps going up it’s a good sign. However, there could be a really good short opportunity if this becomes more likely.

- Pakistan… need I say more? The Mosque at Ground Zero is bigger news… I mean really. Because of this, no aid is going to a country that has nukes, is politically unstable and is a shelter for Al Qaida. Didn’t Australia want to sell Uranium to India under Howard? I don’t know, this situation is deteriorating, but it is happening so slowly we are used to it. This flood could be the tipping point and if so where are we going?

The US S&P500 -0.37, European top 500 -0.76 and UK -0.31%. China fell almost 2% Friday! In early trade Asian markets are flat… even the ASX – what a surprise, the experts get it wrong again!

ETFs - Good idea to wait until the monthly update on shorts. This market looks weak, but I suspect no huge moves for a couple of weeks (and by huge I mean >3% fall in one day).

Options – I am going to try to get a balanced portfolio this month, but I will be sure to have ‘auto-exits’ on – otherwise I just wouldn’t risk it.

Critical information – All Option traders must check that they have no unwanted stock positions. This market could break down (or even up) and if you have a stock position you want to dump it fast. You will need to double check everything tomorrow and if there is something you are unsure of contact Customer Service.

Today’s Top Tip

Keep up to date with all my latest thoughts on developments in the markets via Twitter: http://twitter.com/lifestyleIS

Information for Beginners – Do not make the mistake of thinking short term and making reactive decisions. Follow your strategy and think long term. This will help you make smart decisions, which leads to profit. I would say this is a sideways market going into a falling market for stocks, which means Forex should improve.

Information for Intermediate – Watch Sugar – I think it’s a great long, but we could get a nice short.

Information for Advanced – It’s difficult. I would say trends will increase, but you may be waiting a little while.

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Divergence

The failure of a market or indicator to follow suit when a related market or indicator sets a new high or low. Some analysts look for divergences as signals of impending market tops and bottoms.

This morning I got up really early and attended a breakfast for business people held by Church. Yesterday, I had a great session with my business coach. Besides being an extremely valuable opportunity to take time out and looking at improving things, it also provided a different perspective, which is invaluable.

Since I have been doing the coaching not only has my business improved, but I also feel much more confident and have allowed myself to focus on what is truly important for me to add value and let very talented people do their jobs.

A different perspective is invaluable and I think our success has a lot to do at looking at different ideas and ways in which we can help our clients. Sometimes this means we move pretty fast in the hope that it will have long term benefits and we have to assess things as we move along.

How does all this relate to trading? Well having a long term perspective is important and yesterday (although it may not have appeared that way) I thought too much short term. I focused on the data that had come out and not the data that was coming and my long term view. In my mind I was still bearish I just switched and thought the stock market wouldn’t do too much. Remember I said if the S&P breaks 1100 I highly doubt it will return to that level? Well have a look at the highs for the past few days… just below 1100. Even with that positive news it couldn’t break above it and last night the market confirmed that the path of least resistance is down.

I have also spoken a lot, especially on Twitter, about the high unemployment rate and how this would hold the US stock market (and therefore developed markets) back from a recovery. This is really the critical thing and it just isn’t happening. Those of you who have read my stuff for a while may remember when the US stimulus package was being discussed and I said “if they are going to do it they had better over do it”. You see everyone wants to spend as little as possible, but they don’t realise that if you don’t make sure you get it right the recovery won’t be sustained.

China and Australia both did more than enough – a very smart move, although it must be said that these two countries had the money to do it. The US and many other countries tried to do just enough and now their recoveries are running out of steam. Therefore, you have very bad employment conditions that just aren’t getting better. You may get manufacturing back on its feet but then there is no follow through from the consumer because on the street everyone is unemployed.

Yesterday’s US jobless claims actually went up! So more people are losing their jobs. This has problems written all over it when the stock market has growth priced in and all the figures say there isn’t going to be too much of that.

Today in my weekly I am going to continue this discussion on looking at the long term. It’s one thing that the great traders do and something I work on all the time.

On the long term I also wanted to say a big thanks to all the people that devote their time to helping other traders, especially in remote areas. These people are positive and devote their time even when short term they may be having a hard time. We call them Buddy Group leaders and the vast majority do a fantastic job.

If you attend a Buddy Group it’s important that it’s positive and keeps you on track on your journey. I must say that one of the dangers with Buddy Groups is that they can (and have in the past) taken clients off the path and this has proven very dangerous. If this is the case with you then you need to take the steps to get on track and do what is right for the long term benefit of your trading. I take this extremely seriously and it is why I am a bit unsettled about having buddy groups.

But what do I want long term? Well I want successful traders and I believe that long term good Buddy Groups help achieve that. So I am trying to work out ways of better supporting Buddy Group leaders so that they can continue to do a great job. We are always going to have them so I am trying to work out how I can help them give the best possible information etc.

If you are leading a Buddy Group I want to say a big thank you for all the work you are doing. I really want to acknowledge you for what you do. But I also need to find ways to specifically make you better traders because then there will be a flow on. You should be hearing from Mikaela over the next week (assuming we know about you) about one of the things that may make a positive difference to you. I am not going to promise you dramatic action and change on this. I want to do little things that make a difference to you because, from what I am hearing, you are doing a great service to other traders and just a little bit extra would make a big difference.

The US S&P500 -1.69, European top 500 -1.36 and UK -1.73%. In early trade Asian markets are down with Nikkei over 1.4% down, and ASX almost down 1%.

ETFs – I am sticking to what I said yesterday here. I actually hope that other traders read the ETF section because this is where I give my long term view and that is that equity markets are on a very shaky down, with risk to the downside and I believe markets will accelerate to the downside in September and October.

Options – Another good night leading up to expiry – up one day and down the next. On the downside (where I see risk), be cautious if you have bullish option strategies as the market is just above support, which we don’t want to break before expiry. Expiry is tonight though so we should be fine.

If you use Trade For You then you must check all your positions today and make sure that you are not in any trades where the stock is through the sold strike. If you are please contact customer service ASAP.

Tomorrow is critical – All option traders must check that they have no unwanted stock positions. This market could break down (or even up) and if you have a stock position you want to dump it fast. You will need to double check everything tomorrow and if there is something you are unsure of contact Customer Service Monday, first thing!

Today’s Top Tip

Attention Forex traders: Do you have Foreign or US currency sitting in your IB Trading Account under Market Value?

Here’s a video to help you convert the Foreign Currency back to your base currency…

http://www.lifestyletrader.com/media/clearing-forex-currencies/

Information for Beginners – Do not make the mistake of thinking short term and making reactive decisions. Follow your strategy and think long term. This will help you make smart decisions that lead to profit.

Information for Intermediate - Treasuries jumped last night as equities fell. This confirms fear is increasing amongst the smart money and they are on the sidelines. Volumes are pretty low and there is a heavy amount of trading – this is not long term stuff. This means we could easily see a very fast move to the downside and awesome trends. Just stick to the rules.

Information for Advanced – If the market breaks down tonight it will strengthen my fears that stocks are in big trouble and that I need to be making money on the big moves. Under such conditions we often get fast trends where big money can be made, but where we need to be extra cautious of risk.

Scott Goold

Head of Lifestyle R&D

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Trader Term of the Day – Contrary Opinion

The theory that one can profit from doing the opposite to the majority of traders. For example, if a large majority of traders are bullish, it implies that most market participants who believe prices are going higher are already long, and hence the path of least resistance is down. An analogous line of reasoning would apply when most traders are bearish.