Day Trading - Risk Averse Need not Apply

Traders are often lured to into the futures markets with a fascination for day trading.  The thought of trading leveraged contracts without overnight risk is appealing to many, but underestimated by most.  As a retail broker I have had the pleasure, and the pain, of watching day traders attempt to profit through strategies ranging from scalping to "position" intra-day trading which spans several hours.   My observations have led me to the conclusion that day trading is perhaps one of the most difficult strategies to successfully employ.  However, for those that have the perseverance to dedicate themselves to the practice, contain the natural ability to eliminate emotions and have enough experience under their belt day trading may also be one of the most potentially lucrative forms of market speculation. 

Read more...

Click below to read Carley's latest article: 

Volatility Trading using the VIX

The adage buy low and sell high was originally used in reference to price, but can also be applied to the practice of trading volatility.  In fact, even as an option trader looking to trade market price as opposed to volatility, ignoring measures of potential explosiveness while entering or exiting a market could mean financial peril.   While many traders, whether beginner or pro, understand the concept of buying options during times of low volatility and selling them during times of high volatility, emotions often lead a well planned strategy astray.

Want more?  Pick up the October issue of Technical Analyst magazine!

DeCarley Trading recognizes how much your success depends on staying ahead of the market when planning your long-term and short-term trading goals.  To enhance your trading experience and further your education of the market, we have teamed up with Futures magazine to offer you a FREE 1-year subscription.     

Futures magazine is the oldest publication in circulation today serving futures, options, stock, and forex traders.  You’ll increase your understanding of the markets, and hopefully your profit potential, compliments of timely market insight that only Futures provides.  Each issue is full of indispensable information including trading strategies and tactics, market news, successful trader profiles, and money management best practices - sign up for your FREE subscription today!   

Rely on Futures magazine to help you make smart trading decisions – compliments of DeCarley Trading.  Sign up for your FREE subscription today!   

See Carley's monthly column, Futures for You, in Technical Analysis of Stocks & Commodities Magazine!! Click here for a free trial.

November 19th, 2008

See me in the latest issue of "Technical Analyst", Trading Volatility with the VIX

Large drop in inflation equates to plummeting yields.

News of the largest drop in consumer prices prompted Treasury bears to rethink their positions and invigorated the bulls.   The spike in the long bond was fierce and unforgiving.  While the market seems to have overdone itself on the session, we may be headed for a retest of the September highs.  Nonetheless, should this be the case the odds seem to favor a quick reversal.   

Talk of another global coordinated rate cut also came into play.  However, it is likely that the market will price in the rate cut prior to it ever occurring as.  Therefore, one shouldn't look to be a buyer simply because the rate cut is becoming a reality.   

Traders were eager for the FOMC minutes which were released at 2 pm Eastern Standard Time but the news turned out to be a relative non-event.  According to the minutes, the Fed is now projecting the unemployment rate to reach the mid 7% range in 2009. While this news is supportive to Treasuries, it isn't necessarily a surprise.   It seems as though after another session or two of a catch up rally, the Treasuries are apt to run out of buyers. 

Volume was said to be thin and the trade "sloppy".  I can't blame traders for wanting to sit this one out.  The auto industry bail out hearing along with constant Fed chatter has left market participants queasy at best.  As a result, yields on the short end of the curve have made their way lower to levels last seen in mid-2003.   Adding fuel to the fire, PIMCO's Bill Gross was calling for further Fed rate cuts. 

With equities taking a dive, the negative correlation between Treasuries and Stocks is coming back into play.  I am looking for a near-term reversal in each of these markets within the next week.  However, the timing and the magnitude of the moves prior to the trend change is uncertain.  In such volatile markets, both the uncertainty and the risks are high.

From a purely technical standpoint, the September highs in the December 30 year futures look to be the ceiling.  Prior to that, resistance can be found at 122'16.  I would prefer not to see these levels but should the S&P test 800 they will likely be a reality. 

I still like being short the 10 year note, but would prefer to have some insurance as we may be in store for an irrational spike near 121.  I like buying the December 119 calls for about $500.  They are slightly in the money, so depending on your fills and the futures price your actual cost would be a little less as you are locking in some intrinsic value.  However, they expire on Friday.  If the spike is going to occur, it will likely do so in the next few days.  Perhaps, you will be able to sell the call at a nice profit later in the week and hold on to the short futures.

November 19th, 2008

See me in the latest issue of "Technical Analyst", Trading Volatility with the VIX

Lack of buyers sends indices to recent lows.

There weren't any surprises in Wednesday's session.  Instead it was more of the same...doom and gloom.  What we were all hoping for a year ago (lower inflation) has now become the perceived enemy.   

An unbelievable shift from fear of inflation to fear of deflation has occurred as data as recent as this morning suggests that price stability is uncertain.  Unlike concerns experienced in 2007, it seems as though prices of goods and services are simply dropping too fast.  The CPI index dropped 1.0% but this wasn't a surprise.  Analysts were calling for a decline of about .8%. 

Minutes taken during the October 29th FOMC meeting were released this afternoon.  The Fed hinted at further cuts after communicating lower projections for economic activity for the remainder of 2008 and throughout 2009.  The Fed funds target rate is currently resting at 1%, a level only seen one other time in the last half of a century. 

According to the Fed, the economy "would remain very weak next year" and "the subsequent pace of recovery would be quite slow." Consequently, the Fed is expecting the unemployment rate to increase to levels between 6.3% and 6.5% this year and as high as 7.6% in 2009. 

Following today's deflationary CPI reading, it was somewhat positive to hear that the Fed expects that "more aggressive easing" in monetary policy could reduce the risk of a "deflationary outcome". 

The U.S. economy hasn't had a serious bout with deflation since the 1930's.  The biggest problem with deflation is the limited resources in fighting it.  For example, the Fed Funds rate can only go so low. 

In yesterday's report we were looking for new lows in the S&P, and today we got them.  I still feel as though a bottom will be found shortly but am concerned that we may see 770 before turning around.  At this pace, we could see 770 by tomorrow as I have been told that there are several sell stops lingering below 800 and the market's tendency to inflict misery on traders tells me that we will run them.  If you want to be in the market, with little risk but potential to catch the rally if it occurs buy a few lottery tickets such as the December calls with strike prices of 1000 or higher.

Our downside objective for the Dow in yesterday's report was 7,900 and we aren't far away.  However, 7,650 offers the next level of support and may also be seen in the coming days before the market finds a bottom.