In This Issue

STOPS: Why Don't We Keep Them
Hot Market Report
Economic Calendar

February, 9th 2011 - Issue #570

STOPS: Why Don't We Keep Them

by: Vadym Graifer of RealityTrader.com

Vadym is the author of Techniques of Tape Reading (McGraw Hill 2003), How to Scalp Any Market (2005) and Master Profit Plan (2005). Vadym is a frequent featured speaker at International Trader's Expos and Financial Forum Conferences.

He is the founder of RealityTrader.com, a hands-on training company, working with a global community of individuals to achieve high levels of trading success.

Vad is a professional trader and an international private trading mentor responsible for turning around the trading careers of thousands of trader. He has also published articles and interviews in industry magazines, corporate product newsletters and trading forums.

With everything said and written on the subject of stops, it should be a given that everyone is conditioned to keep them religiously even before they start trading. No matter what source a newer trader turns to, utter importance of stops will be underlined and emphasized up to the degree that keeping them heralded as the ultimate key to success. We all heard adages like "Take care of your losses, profits will take care of themselves."

Do all the stern warnings work? Not really.

Time and again traders blow their stops, widen them in the course of a trade, hold losing position in the false hope for recovery. If this destructive behavior continues despite all the warnings, there must be deeply rooted reasons for this. As with most trading flaws, failure to keep stops roots in fundamental misconceptions about the very nature of the market and trading. Such misconceptions result in incorrect psychological makeup which, in turn, creates behavioral patterns harmful for a trader's performance. In order to re-condition oneself it is necessary to work out fundamental, even philosophical if you will, understanding of the market as an environment in which a trader operates.

Let us list and analyze the misconceptions that cause failure to keep stops.

Right action must result in profit.

This misconception stems from misunderstanding of the very nature of the market as an uncertain environment. Newer trader sees a market as a conglomerate of firm links between reasons and outcomes. In such a conglomerate, every reason results in single possible outcome. The simplest case of such link would be "good news – up, bad news – down". We know it's not true – price reacts to news in a wide variety of ways.

Similarly, an inexperienced trader applying the setup he knows "should work" expects every trade to be a winner, providing that all the components of the setup are right. Have you ever heard complaints like "Everything was exactly like in that book, yet the trade failed"? That is direct result of this misunderstanding. Everything may be right, yet the trade fails – just because markets work in probabilities and not in certainties...

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Hot Market Report

by Jim Wyckoff

Corn Rallies on Bullish USDA Report; Now Flirting With $7.00

Click the image to enlarge

March corn futures at the Chicago Board of Trade on Wednesday rallied sharply in the wake of a bullish supply and demand report issued by USDA Wednesday morning. March corn futures hit a fresh contract and 2.5-year high of $6.95 a bushel and the bulls are now eyeing pushing and closing prices above major psychological resistance at the $7.00 level. A nearly three-month-old price uptrend is in place on the daily bar chart for March corn futures. There are no early technical warning signals to suggest a near-term market top is in place. Thus, the path of least resistance in the corn market will remain sideways to higher until technicals suggest otherwise. A close above major psychological resistance at the $7.00 level in March corn futures would provide the powerful corn market bulls with more upside technical momentum and would then suggest a challenge, soon, of longer-term chart resistance at $7.50 a bushel, basis nearby futures. The all-time record intra-day high in nearby corn futures was scored in June of 2008, at $7.79 a bushel. Bullish corn market traders are not ruling out a new all-time high in the corn futures market in the coming weeks or months. On the downside, the corn market bears would begin to gain some fresh downside near-term technical momentum by producing a close below solid chart support at the February low of $6.55 3/4, basis nearby March futures.

Jim has an excellent daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at Jim Wyckoff

Economic Calendar

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!