As I said in my post four days ago, I was ready to go short the Dow. I am now short.

I waited for the Zweig 4% model to signal. NB I use a modified daily version of Zweig’s model and it triggered -4.69% on March 16th.

Again I was patient and I waited for the Dow to rally on Thursday because it was so far below its Moving Averages. Then on Friday when the G7 intervened to weaken the yen, the Dow spiked up again. I sold it during the spike up and I am now nicely placed for a medium to long term short position. I expect to hold the position for a number of days at least and most likely a number of weeks. I will only exit the position if I get stopped out or Zweig’s model signals the other way i.e. +4%.

All but one of my indicators is bearish. The final indicator is very nearly bearish.

Your for successful trading,

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

My blog has been very quiet this year while I have waited patiently for a good opportunity.

That opportunity seems about to be presented.

I am bearish on the Dow for three reasons, and none of them is the situation in Japan.

Reason 1 – Dow Technical

The Dow Futures contract is now at a new 20 day low having been bought up this year in a huge move. In fact the whole up move from March 2009 has been one of the fastest and strongest in history. Even people who are bullish admit there is room for a pullback.

A new 20 day low is one of my favourite sell signals.

Reason 2 – Martin Zweig Model

I update and follow Zweig’s brilliant 4% Model. NB This model has not yet signalled but it is very close. I expect it to trigger a sell signal within days. Once it triggers I will go short.

If I had not waited for this signal I would have taken the 20 day low that signalled on 9 March. Note that price has not gone above the high of the trigger candle (9 March).

[Click on the chart to enlarge it.]

Reason 3 – Elliot Wave

I am not an Elliot Wave theorist but I greatly admire Bob Prechter and Robert Folsom.

Today they released a special extremely bearish post. This is VERY unusual for them to come right out with a strongly one-sided recommendation. You can read it in full at:

http://www.elliottwave.com/single-issues/ff/FFS99-Bearish-You-Bet-You-Will-Be-Too-Once-You-See-What-We-See.aspx?code=CG

How will I trade it?

I will most likely sell the June mini-Dow Futures contract.

In my 20 years of trading the markets I have found that the best trades are the ones that go strongly in the direction you expect, and don’t look back i.e. when going short the price does not go above the top of the break candle (i.e. the candle that made the break). This is a very low risk way to trade because you can use a tight stop. In addition I may also use the weekly pivot as a protective stop.

Happy trading.

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

When you start trading your precious capital you must have an edge in the market. To explain what I mean, think about a casino. The Casino has an edge in every game in the casino. For every bet placed there is a probability that the Casino will win. That means that the Casino is happy to lose some bets because it knows over a period of time it will win.

You might think that in any trade you take in the financial markets there is a 50% chance of winning or losing. This is NOT the case. In fact if you believe that you should not trade at all because after you have paid commissions etc you must LOSE over time.

A lot of new traders make the mistake of starting to trade without an edge i.e. without working out a way to put the probability in their favour. Any Trading System is a system that has been designed to have a probability of profitability.

How do you find an Edge?

A Technical System is one based on market price information only. This is different to a Fundamental System which is based on the understanding of the actual underlying economic and instrument-specific information that moves the market you are studying.

You can have an edge in both types of system. However it is my belief that unless you have significant in depth knowledge of macro-economics or of a specific commodity (for example you know almost all there is to know about how wheat is grown, cultivated, marketed, and consumed) then you are far better off trying to develop a Technical System that has an edge.

The essential assumption of a Technical System is that there are recurring patterns in financial markets. In its simplest form therefore a Technical System with an edge is one that:

1. Has identified a pattern in a specific market.

2. Has identified a way to profit from this pattern reoccurring.

3. Has been backtested (tested over historic data) and shown to be profitable.

4. Has been forward tested (tested in a live situation) over current data and shown to be profitable.

For more details see: www.tradingbook.org/technical-analysis

Whilst it is possible to purchase systems that purport to have an edge in the market, the vast majority for sale DO NOT actually have an edge in the market. Think about it. If you developed a Technical System that was consistently profitable would you sell it? No, you would trade it. There are some exceptions, but very few.

For that reason my strong recommendation is that YOU research, find and develop your own Technical System with an edge.

Yes it is a lot of work. But remember trading for a living is a business. There are no free lunches.

If you insist on trading your precious capital without finding a system with an edge, I can make life much easier for you. Give all of your trading capital to charity. The result will be the same (your money will be gone) but at least you will have a warm feeling, and a tax deduction!

Yours for Trading Success

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

In the last month I have had 123 people sign up to my Free Trading Tips Service.

The feedback has been overwhelmingly positive.

If you have not signed up yet, please sign in at www.TradingBook.net/trading-tips

You will get an email every third day with tips and information on a specific Trading Topic such as:

You Must Have an Edge

Your Trading Personality

Trend Trading

Technical Analysis

Fundamental Analysis

Money Management

Risk

Stop Losses

Cut Your Losses

Profit Goals

Losing Streak

Trading Legends

Top Trading Books

- and so on.

If you are already getting my Free Trading Tips, please add a comment at the bottom of this page with your Feedback.

Thank you.

Yours for Trading Profits

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

If you spend time on the Internet especially on Facebook, Twitter or Forums you will hear people talking about their trading returns.

10% a month. 300% a year. 3% a week. You will see them all.

What if you had ground out a 20% return in 2010? Yeah pretty disappointing right?

Sub-par. Difficult to make a living on just a 20% return on your capital. Should really increase your risk in 2011 and try and at least get a 50% return.

WRONG!

The most successful investor the world has EVER known is Warren Buffett.

Poor (false) old (true) Warren has been grinding out a measly 20.3% return since he purchased Berkshire Hathaway in 1965.

So what if you had invested $100,000 with Warren Buffett in 1965?

Yup it would be worth a measly $409,216,588.

$409 million.

What are the lessons here?

1. Stop trying to hit the ball out of the park with your trading. It might work for a while, and then you will do it once too often and they will carry you out.

2. Stop taking excess risk. It doesn’t pay in the long run.

3. Be DELIGHTED with a 20% return. If you do it consistently you will one day be INSANELY wealthy.

4. Build trading models that are consistent at grinding out returns of 1-2% per month.

5. If you can show a track record for 10 years of consistent 12-20% returns with low drawdowns people will crush each other beating a path to your door asking you to invest their money for them.

Yours for CONSISTENT modest returns.

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

PS You can read Warren Buffett’s letters to his investors for the last 32 years FREE at the Berkshire Hathaway website:

http://www.berkshirehathaway.com/letters/letters.html

This is the best investor the WORLD has ever known, talking about his philosophy, investments, strategies and genius – priceless!

People used to wonder how Jimi Hendrix got his great distortion sound. “Simple” he said, “I turn everything up to full volume.”

Looking at volume worked for Hendrix and it works for traders too.

The Friday before Black Monday in 1987 was a record high volume day and a big down day for prices. It presaged the collosal drop on the next Monday.

I have been perplexed lately looking at the markets. Two weeks ago I was bullish, partly on Martin Zweig’s Super Model which was signalling bullish signs all over, and partly on the historic fact that the week before and the week after Thanksgiving are almost always strong up weeks in stocks.

As always however I let market prices tell me what and how to trade and now I find myself long USD four ways:

Long USD NZD

Long USD AUD

Long USD GBP

Long USD CAD

The USD is going up as equities come down.

Volume

I have a spreadsheet where every day I record (amongst other things) the total volume of stocks traded on the NYSE. The average number since 1 July 2010 is 1,032,599,363 (yes it’s a lot).

Today the Dow closed down 0.42% for the day but more importantly it did so with a daily volume of 1,520,221,853 which is a whopping 47% higher than the average volume since 1 July and the second highest daily volume in that period. A fall on large volume is a bearish sign at the best of times.

So I now find myself bearish and expecting further falls in equties and gains in the USD.

However as always I will be dictated by the price action and I will exit my positions if my stops get hit!

Happy Trading

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.net

One of the most important tools a trader has at their disposal is to examine potential trades and see how they could have and should have profited.

Why? Because history repeats again and again and again in the markets, that is why technical analysis works.

I missed most of the run up in silver which is VERY painful for a trend trader.

My most important question therefore is: How can I catch the next big move?

So I look back at the Silver chart and I can see something very powerful: The Weekly Pivot Point shows when to enter and when to exit. Here is the chart (click to enlarge):

Even using this simple technical tool you can enter the trade at the break upward through the Weekly Pivot Point and hold until the Weekly Pivot Point is broken.

To protect against the very small false breaks below the Pivot, do not close out the trade until there is an hourly candle that CLOSES below the Pivot line.

Had you used this entry and exit strategy and bought One Silver Futures contract (5,000oz) this would have been your profit:

$23.80 – $18.20 = $5.60

$5.60 x 5,000 = US$28,000 from ONE contract. Wow!

Next time you miss a fantastic trade, go back and work out a strategy that will allow you to profit the next time a similar opportunity arises.

Yours for Trading Profits

Oli Hille

Author

“Creating the Perfect Trade”

www.TradingBook.org