trading tips

Blow Off Top – Retail Bagholders

Forex Kong 10 Comments

I’m throwing this out there now – more so as a warning to newcomers.

My “risk barometer” being the SP 500 / Dow Jones Industrial Average is cranked about as high as one can imagine – given the current global state of affairs. We are now looking at levels not seen since the highs, prior to the massive crash in late 2007.

One can only assume that right around now, every retail investor on the planet has heard of the “massive upswing in markets” and has just as likely received word from their local shyster (ooops… broker) that now is a fantastic time to buy – as to not “miss out” on the opportunity to make a quick buck.

Looking a few days / week out – one could very well see what I refer to as a “blow off top”. A market phenomenon where large numbers of retail investors chase prices in a frantic scramble to “get in” before the opportunity has passed and the ship has sailed. Unfortunately this is right around the same time that Wall Street is unloading its last few shares (at insane premiums) to the poor unsuspecting newbies – blinded by greed, stumbling over themselves to snap up whatever shares they can.

I’m not suggesting their isn’t money to be made (seeing market leaders such as Apple down 55 bucks looks like a buy opp to me too) but I am putting out a strong reminder that – this is how the markets work. You are the last to buy (at the top) and then will generally hold (until you can’t stand it any longer) only to then sell at the bottom. The big boys will “buy your fear” and “sell your greed” all day long – as retail investors continue to do what humans will do.

Does this at all sound familiar?

Take heed….watch these markets like a hawk here at the highs….thank me later.

Learn To Trade – Or Die

Forex Kong 25 Comments

I still hear some of these “old school” guys on the net – talking about “investing”. Good luck with that.

You see – for those of us who got started in this game around the time of the crash in 2008, the word “investing” has more or lost its appeal. Considering the current environment, and the forecast for the future – anyone considering investing in anything (for any extended period) should most certainly have their head examined.

I wish it was still that easy.

I pull up charts on any number of things, going back some 10 odd years or so  – and laugh. These guys still think they know what they are doing because of their experience back in 2005 when it didn’t matter if you bought ” day old cake”. Every morning you woke up – called your broker – and your stock went up.

This is fantasy land now. This will likely never happen again.

If you are not willing to spend an extra hour or two studying the company you just invested in, or following a couple of charts, or tuning in to the current news (and I’m not talking about CNBC) to get an idea of what’s going on day-to-day – I can assure you….you and your hard-earned money will “all too soon” be parted.

You don’t have to become a “day trader” – as I don’t day trade either, but you should at least come to understand that there is nothing wrong with selling when you see a profit – and buying back again when your favorite stock dips. Trust me – you won’t miss a  thing.

Markets today (more than ever) are designed to rid you of your cash – designed with “alien type precision” in fact…..for that very purpose. If you don’t learn to “trade” – I have some very bad news for you.

For all your efforts….and all your hard work……you will most certainly end up with zero.

Learn to trade – or……….

End Of The World – Kong Attends

Forex Kong 2 Comments

The world isn’t going to end….. so for those of you hoping to take the “easy way out” of your current gold positions – please……if only it where that easy.

The Solstice on December 21, 2012 ~ precisely at 11:11 AM Universal Time ~ marks the completion of the 5,125 year Great Cycle of the Ancient Maya Long Count Calendar. Rather than being a linear end-point, the cycle that is closing is naturally followed by the start of a new cycle. What this new cycle has in store for humanity is a mystery that has yet to unfold…

2012 is also considered the completion of the 26,000 year Precession of the Equinoxes cycle, and some say it also signifies the end of a 104,000 year cycle. That is some serious SERIOUS math on the part of the Maya – and as an avid student of “all things Maya” I will be in attendance at the ruins of Tulum  – here on the Mayan Riviera, Yucatan Mexico.

As my spaceship is still in “ill repair” perhaps my fellow space brothers will make an appearance, saving me some time and effort. We’ll see……but if all things go right – well…………  “It’s been a slice!”

I wish you all the best of luck with your trading, and encourage  you to continue looking to the future – as the past will provide little guidance for the “financial reckoning” coming soon to a theatre near you.

Kong…………(literally) Gone.

Trading Divergence – What To Look For

Forex Kong 2 Comments

Definition of ‘Divergence’ – When the price of an asset (or an indicator) index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions (thank you Investopedia).

We all see divergence a little differently depending on what you trade and what you watch. Some traders look for divergence within a specific area of focus (for example if the price of gold is skyrocketing, but the gold miners are taking a bath) and some (like myself) look for divergence across markets (divergence when I see both equities going down as well as the dollar – as well as gold!). Obviously in a situation like this – something isn’t right.

Divergence can often signal that a significant change in direction is in store  – for at least one of the assets involved.

If you’ve been following the price of gold as of late, you will see that it has come down considerably in recent days. If you’ve been following the dollar you’ll notice that it too (over the past 3 days) has been falling alongside gold – as well market leader  Apple Inc. – down more than 50 bucks over the same time frame.

Ask yourself – if gold (and Apple) are priced in dollars…and the dollar is falling…shouldn’t the price of these two assets be going up? – something’s got to give.

Looking out at larger time frames (I am talking a weekly chart) often helps in spotting the “odd man out”. As well – a good solid “recap” of the fundamentals driving price action in each given asset.

  • Ben is printing dollars like confetti – that’s not changing anytime soon. (dollar down)
  • Demand for gold is (and always will be) high – I don’t see that changing anytime soon. (gold down?….ummm)
  • Apple is the most valuable company well……..ever! (apple down?…ummm)

In this example it looks far more likely that both gold and Apple are merely “pulling back” with larger uptrend to continue as the dollar continues its slide into the basement. The divergence here (and how to trade it) points to buying opportunities in both equities and gold – and a continued downward trade on the dollar.

2013 – Only The Apes Will Survive

Forex Kong 27 Comments

Let’s face it – the markets have become increasingly more difficult to navigate. For the most part, anyone sitting idle for anything more than a week or two max, has likely come out on the receiving end of a “good swift kick in the account” – if you know what I mean. Hedge funds drying up, blogs offering “financial advice” dropping like flies, and the majority of investors left wondering “what the hell to do” next. Well……………….

It’s only going to get worse.

I’m not looking to scare anyone ( as you should already be completely petrified no?) but I see 2013 -14 as likely the most difficult / volatile / dynamic / screwed up / challenging / trading environment I will have faced in my entire career. The number of variables are staggering, and the new “forces that be” (now being the majority of central banks on this planet) are not only locked and loaded – but have more chips than well…..they’ve got a lot of chips.

So…….

You can’t be a bull. You can’t be a bear. Anyone sitting on one side of the fence or the other (for any considerable length of time) will be liquidated like butta. You are going to have to learn to trade like a gorilla – or you will surely be left with “less” – if you currently have anything at all.

I should explain…….

I have no bias. I trade in one direction or the other (avoiding “sideways” at all costs) with 100% conviction. I have absolutely no concern where the market is going – only in that, I am going with it. I don’t cling to any idea what so ever that the “world is a beautiful place” or opposite “the apocalypse is upon us” – zip , nada , zero as it pertains to my account balance.

This is trading like a gorilla.

You will have to evaluate/ re-evaluate  your current “animal character” very soon in that – whatever you’ve been doing has likely not been working….and whatever anyone else is “telling you to do” is suggestive that what “they are doing”  – isn’t working either.

I expect to enjoy these last few weeks of 2012 – and possibly the first few of 2013 before things really start to get complicated. With the printing presses of both Europe and the U.S cranking away and the conflicts in the Middle East broiling, it’s going to take a lot hard work to squeeze out those dollars in 2013 – 14.

I imagine some bulls will make money…. and some bears……..but we gorillas will make more.

Where do you think things are headed in the coming year?

Learn To Trade Price Action – The Swing Low

Forex Kong 2 Comments

A good friend of mine asked me the other day to expand a little on the trade term “swing low” – and to outline it’s significance/importance.

If you are not at all familiar with Japanese Candlestick Patterns – I strongly suggest you take the time to read up and learn to recognize these “formations” in your sleep – as they provide excellent graphic representation of price over time, and are invaluable to successful trading.

You can learn more here.

In any case – the swing low. I’ve included the following chart of SLV (a silver ETF) with hopes of pointing it out. Let me try to explain this in as simple a way as I can.

A “swing low” occurs when the “high of a given day” – takes out (or surpasses) the “high” of the previous day in a recognized down trend. So the series of “lower lows” and “lower highs” is essentially broken with the recognition of the “swing low”.

Lets look:

Swing Low

I  Swing Low

I know I know…..”lower highs” and “higher lows” all sounds a bit confusing,  but if you just take your time and work it out candle per candle you’ll see it. A “swing low” is suggestive that the current down trend may be ending as the high of the day is now “higher” than the high of the previous day! Indication that price action is likely shifting from down  – to up!

 

Hope it helps.

 

 

 

 

Forex Entry Strategy – Kong Size Commitment

Forex Kong 13 Comments

Moving forward with the same general theme that has been discussed here for the last few weeks – it appears that the dollar is now (after a considerably drawn out correction upward) finally on its last legs. Overnight action has seen the EUR take a bit of a pop, and across the board accelerated dollar weakness is really starting to take shape. Gold has essentially traded flat, and U.S equities have formed a large “V type correction” but as well,  are more or less at levels seen two weeks ago.

I have begun my first “set” of currency trade purchases short the U.S dollar (and even smaller buys short the Japanese Yen) against my beloved commodity currencies – the Australian Dollar, the New Zealand Dollar and the Canadian Dollar. So to recap – I am now getting “short” USD/CAD and entering “long” AUD/USD, NZD/USD as well long AUD/JPY, NZD/JPY and CAD/JPY.

With consideration of the volatility in currency markets – a common strategy of mine is what I like to call “buying around the horn”. Meaning – I will place smaller orders several times throughout the coming days as price action moves in the desired direction – as opposed to a larger order at one specific price level with the expectation that I’ve “nailed it” exactly.

This strategy allows me to enter the market with very little risk (with smaller orders to start) and affords me the flexibility to add further to these positions at areas of support (should price dip) or add when momentum picks up (by placing orders above or below current prices) – looking to catch momentum in said direction. If price action stalls or trades sideways – I have only committed a small amount of capital and can relax knowing that I have ample dry powder when things really do start moving.

It is very possible (and even quite likely) that the dollar could move against these “preliminary trades” in coming days – but in approaching it this way – I welcome it! Any further strength in the dollar will only provide additions to my current plan – with a final “averaged entry price” being as good as anyone can expect.

Regardless – the most important element of this type of trade being your commitment. I don’t expect to get it right here this morning, not  in the slightest really – but I have initiated a sequence –  with firm belief in its outcome.

I am committed to the trade.

 

 

 

Patience – As Things Trade Sideways

Forex Kong 14 Comments

Sideways is not a direction I am particularly fond of. You can’t make money, and for those unable to distinguish the characteristics of “sideways” – you can also lose money – very fast.

Traders dream of mounting profits  – with day after day followed by yet another tall green candle, with  trend so clearly in place that a five-year old could trade it effectively. This is rarely the case. Where as – we are most often faced with  ambiguity, trendless markets, ranging stocks or currency pairs and a general sense of confusion as to “where the market is going next”. In fact, they say that markets are generally only trending 30% of the time – and that the remainder of time is spent grinding traders accounts to dust in the dreaded direction of….you guessed it – “sideways”.

Lets look at a quick example.

In the example above – clearly no trend is in place – and a trader is left struggling for days, looking for a definitive sense of direction. This (more often than not) pushes a trader to do things such as:

  •  Dump the position at a loss (even though – it’s just as likely that the direction will eventually turn in your favor).
  • Add to the position (creating even more exposure and risk) with thoughts that the small dips or bumps are buying or selling opportunities.
  • Hold the position – but with considerable stress –  with funds now tied up (day after day) and no profits to speak of.

For the inexperienced “sideways” is almost certain to cause significant emotional pain, and even more so –  pain to their account balance. I do my absolute best to avoid this at all costs but still – with years of experience, have learned to accept it as a part of trading, and that is virtually impossible to avoid 100%.

Patience is the key – as making decisions during times of “sideways” will almost certainly take its toll on both your account….and your emotions.

Risk On or Risk Off – Decide At Your Peril

Forex Kong 11 Comments

When looking at trading markets in general – I always consider a single (and very important) overlaying theme. Superceding  all others, and guiding my decision making process – regardless of asset class, current news headlines, technical indicators, price and sentiment (which has now become a commodity itself – being “resold” across the internet at any number of bogus websites) I will always look for the answer to one fundamental question.

Are investors currently considering taking on risk? – or looking to protect themselves against. Very simple and to the point.

Is risk on or is risk off ?

When risk is considered “on” – money flows to those assets where investors feel there is opportunity to see a return on their hard earned dollar. A time when things are “looking up” and investors feel somewhat safe in taking their money out of savings – and placing it elsewhere (the biggest measure of risk on this planet is currently the U.S stock market).

When risk is “off” – money flows back into savings accounts, back into “security” (out of risk and U.S equities) – and subsequently back into currencies such as the U.S dollar and the Japanese Yen ( are you starting to see how this works? ).

So……if nothing else – a fundamental knowledge/feel  as to weather or not  the current investment environment is “risk seeking” or “risk averse” can go a long way in keeping an investor / trader on the right side of the market.

And the question begs to be asked – is it risk on? – or risk off?

Planning The Attack – The Power Of Cash

Forex Kong 12 Comments

Being 100% in cash is one of the best feelings a trader can have. You’ve reduced your risk to absolutely zero and have effectively “brought the soldiers home” – now free to do any number of things. You can choose to take a break – if that’s whats needed. You can regroup / step back and take a new look at the field. You can heal (if by chance your last battle has left the troops – how shall we say….”defeated”?) – or you can use the opportunity to do what I always do. What I always do!

Plan the next attack.

There is no room for complacency anymore. The times of making an investment decision and “checkin on it next month” are well behind us now – anyone suggesting otherwise is a complete and total fool. If investing is a battle – then we are at war every single minute of every single day, for the rest of  our god given lives – period. Accept it….deal with it – own it.

My plan (oh yes – you guessed it) is to get on the offensive, mobilize the troops and “take it to em” with everything I’ve got. You see……the enemy has already shown it’s hand. Giant “printing presses” now in place along the lines. Aimed at the sky with such power and might as to “rain down dollars” on the innocent children and families below.

The plan is flawed. And the spoils of war will soon go to those who have found ways to move quickly through the trenches, stay nimble, alert – and attack when given opportunity.

I plan to get ridiculously short the dollar in coming days – and expect and equally powerful move upward in all asset classes – as the “rain of dollars” floods markets and trenches alike….

What’s your plan?

 

(Seriously everyone – lets try to get in here this week and contribute – good or bad etc……lets hear what everybody’s thinking – It says “leave a reply” so……LEAVE ONE!)