CONTENTS
• Letter from the President ‐ Page 3 • Editor’s Note ‐ Page 4 • Reading Price & Volume Across Multiple Time Frames: Application of the Wyckoff Method by Dr. Gary Dayton ‐ Page 5 • How to Use the COT Report For Trading by Alex Bernal ‐ Page 15 • Book Review – The Complete Turtle Trader by Priti Lohia ‐ Page 24 • Forthcoming Events – Page 27 • Past Events’ Update ‐ Page 28 This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's opinion nor does it constitute an endorsement by the Association of Technical Market Analysts or any of its officers, of any products or services mentioned. Sources are believed to be reliable at time of publication, but not guaranteed. The Association of Technical Market Analysts and its officers, assume no responsibility for errors or omissions.
2 | ATMASPHERE
APRIL 2013
LETTER FROM THE PRESIDENT Dear Colleagues, The twenty percent drop of Infosys in a single day and the six percent drop of gold in a single day in this gone month, brings to mind a fact that in today’s market regime no one or no asset is safe. In a world where risk arises and plays out so quickly, the body of knowledge of Technical Analysis has then all the more importance. We have in this issue of ATMAsphere two very good articles on the Wyckoff Method and on the use of the COT report, by international writers. Going forward, I do solicit a wider contribution of articles to ATMAsphere from our members and from other professionals. Our E‐library has witnessed rising interest from our members and more books are regularly going to be added therein. ATMA as an organization is keen on hiring more professional staff members to increase the consistency of services to our members. If you have referrals for prospective candidates in the areas of Branding, Administration, Social Media promotion, Accounting & Finance do write to careers@atma‐india.net and help us recruit good people. The ownership of ATMA rests with its volunteers and members. Do send out your thoughts to me on how you may get involved as a volunteer at the ATMA. Sincerely,
Sushil Kedia
APRIL 2013
ATMASPHERE | 3
EDITOR’S NOTE
In this issue ‐ Dr Gary Dayton explains the Wyckoff method of trading. He highlights how reading price bars and volume across multiple time frames can give both the swing trader and the day trader a substantial edge in their trading. Alex Bernal describes the Commitment of Trader Report issued by the CFTC and illustrates how its usage could be an excellent tool to analyze and trade commodities. Priti Lohia reviews ‘The Complete Turtle Trader’ by Michael W Covel. The Editorial Team at ATMASphere eagerly awaits quality contributions from its beneficiaries. Come ahead, share your knowledge and inspire the readers of this outstanding publication. Please send us your material to editor@atma‐india.net. You can subscribe to ATMASphere completely free by clicking here. Sincerely,
Meghana V Malkan
4 | ATMASPHERE
APRIL 2013
READING PRICE & VOLUME ACROSS
Begin With the Background: Weekly Chart
MULTIPLE TIME FRAMES: APPLICATION OF THE WYCKOFF METHOD BY DR. GARY DAYTON In this article, I highlight how reading price bars and volume across multiple time frames can give both the swing trader and the day trader a substantial edge in their trading. This approach was first described by Richard D. Wyckoff early in the Twentieth Century. Considered the ‘father of technical analysis,’ Wyckoff distinguished market phenomena like support and resistance, climactic action, and testing.
Despite the many changes since Wyckoff’s time, understanding how supply and demand is revealed through price action and volume can be of high value to the technical analyst in assessing today’s markets.
Chart 1: Weekly Chart Beginning with the weekly chart, we use recent trading activity in the Canadian Dollar (CD) currency futures (Chicago Mercantile Exchange) to illustrate some of the skills of chart reading. The weekly has been trading
within the high and low of July and October 2011, respectively. Although CD
held two higher lows at A and C, the market failed to follow through to the upside at D. Instead, a Wyckoff Upthrust (UT) occurred when price closed
below the resistance level at B. This UT was tested at F on comparatively APRIL 2013
ATMASPHERE | 5
lighter volume indicating a lack of buying just under the old resistance level, B. The test at F was also an UT, more clearly defined on a daily chart, and a choice location for the swing trader to initiate a sell‐short trade.
Going Deeper: Daily Chart
From the test at F, the market moved lower on increasing volume and wide range, indicating active selling. The selling stopped just below the support level at E with the next week closing above that support. The failure to follow through to the downside at a support level is the opposite situation of a Wyckoff Upthrust. When price closes above support after dipping underneath it, it is known as a Wyckoff Spring. The swing trader is now presented with a dilemma. Having sold short, a bullish spring begins to unfold. Should the short be covered, and perhaps a long position initiated? The answer may be found in the lower time frame charts.
Chart 2: Daily Chart The daily chart shows the Wyckoff UT at F viewed as a test on the weekly chart. The price bars at 1 and 2 show buyers unable to hold price above recent resistance. Instead, sellers entered and closed these days in the
middle of their ranges and underneath resistance. The elevated volume reinforces the weakness seen in the price bars. Subsequent days paint lower highs, lower lows, and all but one lower closes—indicative of a market
6 | ATMASPHERE
unable to rally. Sellers aggressively drive price down beginning at 3 with
APRIL 2013
wide ranges, poor closes and increased volume to the low at G, indicating
dominated, the high volume also indicates the presence of buying. The
heavy liquidation.
market may test these areas to assure itself that buyers have indeed been
And then the downdraft stops. It is normal for a descending market to pause and rally at support. The key question for the swing trader is whether the rally is simply a technical pullback off of support or the start of a bullish move up. There are a few things to consider.
removed and avoid opposition to lower prices. Thus, we want to look at this area carefully. A bar‐by‐bar assessment can reveal much about the market’s strength here. The rally from the lows at G shows a good move up with firm and rising
Traders tend to rivet their eyes on the last few bars at the right edge of the chart. To read a chart correctly, it is important to go deeper than a few bars and, instead, take in a more holistic view. Thus, the first consideration is seen on the weekly chart. At B, D, and F, buyers had three opportunities to take this market higher, but failed. Although possible, it is less likely that a strong rally would begin with this background. On the daily chart, we see a swift fall from F to G. Volume expands on this large move down. Selling is clearly dominant, as it should be when ignited by a weekly upthrust; this is a strong sign of weakness. Compare this down move to the up move from G to H. Although there two or three strong days on the rally from G to H, the daily ranges and overall volume is comparatively weaker than the ranges and volume from F to G. Buyers will have to mount a much greater effort to overcome the recent supply.
closes. At bar 5, volume increases. This is not alarming as good progress is made on this day, and the range is wide, proportionate to the volume. The next day, bar 6, tells a different story. On nearly the same amount of volume as 5, the range on this day narrows. It is about half the range of bar 5, and its range remains inside the range of bar 5. Although there was certainly buying on bar 6, selling kept the buyers from making the kind of progress they made the previous day. In the Wyckoff Method, this is known as “effort vs. result.” Volume represents effort and price is the result. Here we see large effort with little result, a strong indication that sellers have again become active. The next day, bar 7, tries to rally above the highs of 5 and 6, but fails on light volume, indicating buyers are becoming exhausted. The sudden high volume and subsequent lack of progress displayed by bars 5, 6 and 7, suggest a minor buying climax has occurred. The last two days on the chart—bars 8 and 9 do show that buyers were able to close these days on their highs, so the market
We also see the rally from G to H stop around the lows of mid‐December
can be expected to push a little higher. Volume on both days is the lightest
where the market found support at that time. Because this support was
of the last three weeks. This adds to the developing story of weakness.
knifed through so easily by bar 4, we would now anticipate it to be resistance
Thus, we want to be alert to any weak rally up to, just above, or just below
as the market returns to that level at Markets frequently return to areas of
the high of bar 7.
accelerated movement on high volume, such as bar 4. Although supply APRIL 2013
Day Trading
ATMASPHERE | 7
We will next take on the perspective of the day trader. For intraday assessment, I use a tick‐bar chart. Many periods in the near 24‐hour markets are lightly traded, making time‐based charts more difficult to understand. Tick charts compress this data into a more reader‐friendly format while at the same time retaining price bar characteristics that show demand and supply. We also use an analytic tool developed by David Weis based on Wyckoff’s original wave and tape reading charts called the Weis Wave. This tool plots the swings—what Wyckoff called waves—as an overlay onto the price bars. It also plots the volume of each wave along the bottom histogram. In his day, Wyckoff plotted his charts by hand from data read off the ticker tape. This is no longer practical in today’s markets. The Weis Wave does this useful job for us. Chart 3: Intraday Chart #1 Intraday Chart 1 includes data showing the daily highs of bars 7, 8, and 9 and their associated resistance line. The next day, the market rallies above the high of bar 7. We immediately note that the up move is suspect because the volume on wave B is comparatively light. We note the up waves two days ago (A) showed greater demand than we are now seeing on the break out. We also see the market reverse and push easily down through and underneath the resistance line along the daily highs. Just like D on the weekly chart and F on the daily chart, this, too, is a Wyckoff Upthrust, indicating the presence of significant selling as higher prices above the recent daily highs are rejected.
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APRIL 2013
High downside volume comes in on wave C showing strong selling. We note that wave C is also larger than recent down waves and up waves; another indication supply has entered the market. The weak rally on wave D stops just below resistance. This up wave and its associated volume are small. It is a test of the upthrust. As the market turns back down at the red arrow, the day trader can initiate a short trade. Price moves through the intraday support level that caused wave C to stop. Both waves and volume remain stronger to the downside than the upside. Thus, the very weak rally to the underside of the intraday support line at E offers another opportunity for a short trade. In general, the minimum profit target for an upthrust is the opposite side of the trading range. Price travels to this level on wave F, coming to the multi‐ day low, which is a good location to cover shorts for the day trader who wants to go home flat. In reviewing the day’s trading, we note that supply
has been stronger than demand, as seen by both the length of the waves (down compared to up waves) and the down volume. We anticipate lower
Turning to Intraday Chart 2, we see that the next day begins with a weak rally
prices in the near future.
that is unable to push above the intraday support line from yesterday (at C), which has now become resistance, just as we saw on the daily chart at H.
Chart 4: Intraday Chart #2
The poor rally ends in an intraday upthrust at the top of wave G, where a day trader can enter short as the market starts down. Note that volume increases on wave G without much advance in price. The effort made by buyers on wave G was met by a superior force of selling limiting upside price progress and adding to the conviction of a short sale on the upthrust. The market makes good progress down on good downside volume through the support level of F down to H. Why does the market stop here? The low
APRIL 2013
ATMASPHERE | 9
of wave H is at the same level as the weekly support at E. It is an obvious and
analyst would recognize that the volume at J has lessened (compared to
logical location for the intraday market to at least pause. The minor down
waves F, H and the wave after I). As the market turns up from wave K, the
wave between wave H and wave I shows that selling has abated. A rally
signal to cover shorts and prepare for a rally is clear.
would now be expected.
The rally ends at the top of wave L. An uptrend channel highlights the
The market pulls back on wave I. A standard trend channel highlights an
oversold position of price. Price has risen close to the top of the down trend
overbought condition at the top of wave I. We also see the characteristic
channel and just below resistance that has formed from the lows of wave H.
effort vs. result in the high volume, little price progress of wave I. As the
Given the down trending conditions of this market, it is unlikely price will rise
market turns back down to and under the supply line of the trend channel, a
through this combination of resistance. A short may be taken here, and price
short trade can be entered.
moves down returning to yesterday’s lows at the bottom of waves J and K.
Shorts can be covered as the market is unable to fall below the day’s low if
Note carefully the rally from the lows at J‐K to the high at L. Although this
the trader prefers to flatten at the end of the day. There is, however, strong
rally did not break the supply line, it is the largest up move since the down
evidence for further follow through to the downside for the next day. This
trend began at B. We also note that more upside volume came in on this
day’s action clearly shows sellers in control. Down waves remain larger than
move than we have seen in this downtrend. These two conditions indicate
up waves and downside volume predominates. The day began on its highs;
that demand is beginning to enter the market. On the subsequent down
broke yesterday’s low, and closed near on its lows. The two attempts to rally
wave M, we see large downside wave volume, but price is unable to push
(waves G and I) were both feeble. These are all characteristics of a weak
through yesterday’s lows. This is an effort to go lower without a
market.
proportionate result, indicating the buyers are absorbing selling. The time
The market does follow through to the downside the next trading day. We notice, however, that price has reached an oversold position in the down trend channel, the supply line of which was drawn from the tops of waves B and G. A parallel line would then have been drawn from the low at wave F, but the market was so weak that it exceeded that line (not shown) rendering it useless. In this case, a parallel demand line is drawn from the low of wave
period is also important. We have not seen such high intraday volume during this period. These conditions alert us to a change in market behavior. At the bottom of wave M, price dips underneath the support of yesterday’s low and closes back above it. With the strength seen in the immediate background, a long trade may be initiated at this Wyckoff Spring (green arrow). Conclusion
H. Wave J reaches the bottom of the trend channel. The astute Wyckoff 10 | ATMASPHERE
APRIL 2013
This article highlights the application of the Wyckoff Method in the modern Canadian Dollar currency futures market. Although the principles of reading supply and demand highlighted here were first described over 80 years ago by Richard Wyckoff, they continue to serve the technical analyst and trader well. In this modern era of advanced technologies where we tend to emphasize indicators, statistical models and other derivatives, is easy to overlook the straightforward behavioral principles of buying and selling underlying all freely traded markets. Reading supply and demand continues to be a valuable guide to the market’s next likely action and should be a part
of every analyst’s skill set.
Dr. Gary Dayton is an active trader and a psychologist. He created a training program called
‘Deep Practice’ based on psychological research in expert performance to help traders acquire the skills of the Wyckoff Method. Dr. Gary is currently
writing a book on trading psychology to be published by John Wiley & Sons.
www.TradingPsychologyEdge.com
APRIL 2013
ATMASPHERE | 11
The Dream... has come True! Almost! World's FIRST E‐Library of Technical Analysis अ न दानं महा दानं ;
व या दानं मह तारम |
अ नेना
णक िु थह ,
यावा जीवं हू व यया ||
Giving food to a hungry person is indeed a great donation, but the greatest donation of all is to give a person education. Food gives but a momentary satisfaction whereas education empowers the person for his entire life. Each ATMA Member is at this point going to be able to give as much to each other as each is going to be receiving in course. The Dream, that is how I have always called it for myself, the establishment of an E‐Library that contains not just research papers and manuscripts but commercially published good books on subject areas related to us, is now within reach. Almost there..! Yes! Books on Technical Analysis, Trading Strategies, Quantitative Finance, Back‐testing, Algorithmic Trading, Investment Psychology, Hedge Funds, Behavioral Finance & lots more! Even before succeeding at launching ATMA, I have aspired with my blood, flesh and soul to be able to bring up this concept. In fact, right at the day of our launch we inaugurated an E‐library that contains many decades of research papers and journals! But the commercially published books could not be integrated so far and a true professional self‐service e‐library has had to wait. With painstaking work some of us scrounged and searched endless websites, made endless calls liaisioning and networking with some of the best publishers across the globe trying impressing upon them India is a safe country and we are as ethical as any other professional enterprise in any other corner of the world to be allowed to host a digital library of books 12 | ATMASPHERE
Endless evaluations of legal structures, payment formalities, technologies and this sweat and toil of nearly 20 months is now fructifying! The world's most reputed, largest and oldest vendor of E‐libraries has considered positively all our pitching and discussing and despite the fact that we may be there smallest customer today agreed to mail over a contract to us!
This vendor has digitized the top 10000 libraries around the world! And yes, your very ATMA is going to be now served by this very vendor! Not only are we going to buy and stock up E‐books and audio books we will be in time able to generate funds to have training videos in this online library. The work ahead, for all of us.. Make out a list of the top 20 books you wish to see on this library and if you wish to make the list of top 20 books you have read as a Technical Analyst, trader or a markets person make that too! Make a list of top authors if full names of books don’t come to mind immediately. Make your wish lists! Mail them to & they will librarywishes@atma‐india.net automatically be forwarded to all volunteers working with me and Gunjan Dua on this DREAM PROJECT.
Write out your lists Email to TEAM Let team compile Team draws map Evolutionary Goal Charity begins at home and do the व या दानं now! Let
your opinion, ideas, desires be known.
The Challenges ahead..! To build a highly useful collection of e‐books that make our money work well for us in this massive ongoing investment, we have to carefully select every good book available and yet also avoid frivolous or very esoteric purchases. Building a great library is an evolutionary goal. Come participate in this path‐breaking initiative that will change the orbit of our Association, forever. Well, there may not be enough money, enough books, enough types of books, enough of this or enough of that, yet what you will along with patience over time to live through when there will be enough of everything, have one thing now which will never come again: be the architects of the world's first e‐library on Technical Analysis.
APRIL 2013
ATMA Social Awards
Competition is good… More so when one is competing in a win win enterprise such as the ATMA Social Rewards. You can notice the points earned by you and others in the Leaderboard. You can earn points every day.
APRIL 2013
So many good things to win. Ramki Ramkrishnan, an ATMA trustee has kindly
Freedom recently for all to win. Kora Reddy has promised to the catalogue five copies of personalized in your name, autographed copies of his book on Quantitative Trading too. More and more is coming. Polish your social media skills and do visit the website of an organization you own, daily. Win‐Win....
yes you can win.
The MyATMA private network on our website is in full swing too. Have you been not posting things on the groups you have joined there, have you not been sharing videos or other content on your Facebook type walls, have you not been inviting friends and using the Personal Messaging feature there....
ATMA Social Rewards This simple idea is in full swing now. You will notice the Activities in ATMA Social Rewards information box on the www.atma‐india.net on almost every page and yes on the home page itself too. Just click on the button in there and start winning. Simple as that. A Reward is the award and the best thing is you can choose which one....
added five copies of his best‐seller E‐book, the Five Waves to Financial
Winning is so important, for all us, every day. Yet a winning attitude is ever more important throughout our lives. How about a win‐win. You win, your fraternity wins and everyone win? Well that’s exactly what is can happening with the ATMA Social Rewards...
Wide variety of useful materials to win, any day, any time...
Growing Catalogue...
oh I see, you don’t see how the points on MyATMA can be encashed.... hmmm... that is going to be coming too soon. Keep polishing your social networking skills on MyATMA and keep accumulating those points, they will be usable as a very very private and special MyATMA Rewards also start,
which only our members can participate in. Oh yes, the karma points on the Discussion Forum too will be encashable in some grand scheme. ATMA is a
Redeeming of points as per the catalogue to claim valuable gifts and prizes is simple. Try it, today.
winning idea and a win‐win with each of its owner the larger design of things in the pipeline.
ATMASPHERE | 13
Now, the more important point:
Most important priority: Career Development of ATMA Members
Those amongst the ATMA membership who have a vision, a strategic string of thoughts in place, who have had their brush with changing several jobs and who would know how the inner world of HRM might be working, please polish your shoes and step forward your best foot!
Why are we after all part of this grand exercise called the ATMA, the Association of Technical Market Analysts?
I have to build on an EMERGENCY basis a POWERFUL, INDEPENDENT & FUNCTIONAL Career Development Committee
To be excellent, to be renowned for our pedigree embellished with great knowledge and ethical conduct, to be sound in our approach at what we do in our profession, to be trusted, to be reliable, to be empowered with an all encompassing feeling of being organized together as a big team? Yes, perhaps all of this is true! Yet, all of this is aimed at one key goal and all of these goals will be fulfilled ONLY if each and every ATMA’ite is empowered with the abilities, skills and attitudes to succeed at the career each has chosen!
Right at the inception this vision was incorporated into the design of our website. A powerful JOBS‐BOARD exists where not only our members can build their fully visible CVs they can also build additional CVs with anonymous values in key fields such as name of current employer etc. etc. All of us must TORTURE TEST this tool, now and as many problems or errors or deficiencies are found must be noted and written to webmaster@atma‐india.net. Have patience while you critique the deficiencies! Don’t stop at just pointing out what is lacking, but have the tenacity to stretch your thinking into proposing a solution. Difference between criticism and leadership is that leaders identify what is missing and figure out how to fix it! Own ATMA now! Some few of us at the fight are getting bored of being its solitary owners. 14 | ATMASPHERE
Why can’t we host some webinars inviting Social Media Gurus who can teach ATMA members how to promote themselves in a dignified way on Twitter, Facebook, LinkedIn, Klout, Google Plus? Why can’t we bring in some Partner of a global recruitment firm to teach our younger ATMA members how to write good CVs and cover letters and how to network to be on the frontline for discovering the best jobs? Go take a look at the Career Development Centre on the website of our parent organization the http://www.mta.org I need a team of strong‐willed, independent minded mad men and women who have a solitary goal: beat Sushil Kedia & his early team & create an admirable Career Development Centre which is at least at par with the MTA and perhaps way more!! Get going ATMA! Long way to go and yes the world must yield the place to us the Technical Analysts that we deserve! Does ATMA belong to you? If not, who does it belong to?! Then within the Job‐board is a feature for incorporating the profiles of your companies with a nice write up and logo you can make yourself a featured employer on this powerful tool that this mad 43 year old man could envision even at inception when he had no ideas of how a website is built. If I can stretch my brain and body so far, what stops you mightier younger, energetic smarter folks to beat me blue and black?
APRIL 2013
HOW TO USE THE COT REPORT FOR TRADING
The next largest player is typically the “Large Speculators, which include Hedge Funds or CTA Trading Pools. These guys are much smaller than the overall commercial positions and on average do not have the intent on taking delivery of any of the under lying commodities they are trading. They are
BY ALEX BERNAL
trading purely for profit and their actions are often less valuable to watch
With much of the commodities space taking a hard tumble in recent weeks. I wanted to showcase a very useful tool that I use in my commodities analysis
because they typically trade Future Spreads (Calendars) or Married positions (futures + options).
and trading: The Commitment of Trader Report.
The last group is call the Small Speculators or what some people call “dumb”
money. This group is considered the small guy or 1 lot crowd. It is also
Every Friday the Commodity Futures Trading Commission or CFTC is kinds
typically seen that this group is the most ill‐informed and thus should be
enough to issue a report that aggregates all the futures positions of every
“faded” or traded contrarian too. I have not really found this to be the case
major player in the futures markets.
but there are times when this group does reach pretty extreme readings.
http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm. The aggregate data is broken down into different commodity groups and by 3
Managed Money, Merchants & Swap Dealers are three new disaggregation’s that have only been available in recent times that can further splice up the
Basic different types of traders.
Commercial and Large Speculator positions in to even more specific
categories. This is because of the growth in Commodity Index Funds or ETFs
1. Large Trader
that perpetually hold long positions in the commodity. (IE GLD or VXX)
2. Commercial Hedgers 3. Small Speculators
See Chart Below
The Largest positions are typically held by commercial institutions or “hedgers” that have the indent actually taking delivery of the underlying
Large Trader – Purple Managed Money Crimson
commodity. Commercials are considered the most knowledgeable & are the Merchant Red
most important group to keep tabs on.
Small Trader Black APRIL 2013
ATMASPHERE | 15
Swap dealers blue
This was the first thought I had when I started trying to analyze this data. At first glance it did not seem particularly useful in anyway because it was just a snap shot of what traders DID not what they will necessarily DO next. But the old saying “you can’t turn a tanker on a dime” does lay way to how the commercial paper affects future prices in the commodity. COMMERCIALS, COMMERCIALS, COMMERCIALS It was only after studying the works of a few experts like: 1) Larry Williams 2) Steve Breise 3) Floyd Upperman 4) Jake Bernstein that I fully realized one portion of the participants are FAR more important to watch than the others: The Commercials. The Big Whales, The Deep Pockets The Deciders. These are the guys that when they make moves you will see the large scale ripple effects throughout the price of the commodity in question. As you can see in the below chart the Commercial activity is often in the
So we get the data for free now what?
OPPOSITE direction of the markets trends. This is because they are actively buying when the market is going down and actively selling when the market is going up. They are the experts in their businesses they are often seen to be acting many months in advance of where they believe the price will be. Now this is not always the case and Commercials are not always a “sure thing” but
16 | ATMASPHERE
APRIL 2013
they are the closest thing to a “predictor” that we can get. Also in the graph
below I have isolated only the commercial movement and the Movement of
The COT Index
Crude Oil over the last few years. It is very easy to see that the commercial
So in order to further make use of this data in a way that can help us
movement dominates the overall price trend of oil.
speculate on futures prices one common indicator that I want to show you
how to construct is called the COT index. The calculation is below COT index = 100 x (current Net – Minimum Net) / (maximum Net – Minimum Net) This indicator converts net futures positions to a 0% ‐100% scale (normalizes). It now reflects where the current net positions rank as a percentage of its range over the recent past data (typically three years). I use this to watch for extremes reading in the commodities markets. A 90 % indicator suggests there has been a commercial buying climax. A 5% percent reading suggests a commercial selling climax. In short the COT indicator tells me when the biggest most influential players are ALL IN either buying or selling futures. This is not necessary a call to action but rather an illuminating clue for possible trading setups. I never take trades merely on the COT data or COT Index but rather use my usual execution tools to confirm a new trend before I make a trade.
APRIL 2013
ATMASPHERE | 17
1) Spread and Rate of Change of the difference between Commercials and Large speculators 2) Spread and Rate of Change between Swap Markets and Futures Markets 3) Cycle Analysis on the COT raw data or COT index. 4) COT Index adjusted for seasonality Drawbacks of this Data 1) IT IS LATE! After the fact! Be aware by the time you get this data it is at least a week old and large speculators and commercials can and do change positions quickly! 2) Markets can stay over bought and oversold for very long periods of time. Just because a COT Index extreme is reached doesn’t necessarily mean that the market will up and reverse right after if the commercials do not commit to a new direction of accumulation or The graph above is a great example of how the COT index shows when the cocoa market was overbought or oversold in the last couple years.
distribution there will likely be no new trend change. 3) COT data does not account for possible “spreading” of positions. This can skew the data slightly in particular markets where calendar spreads are a large portion of the overall open interest.
Other COT Indicators Lastly I want to leave you with some graphs of current commodities markets There are many other indicators that I have come across being applied to the COT data, some include:
18 | ATMASPHERE
on their Current COT and Index Positions that I believe are at important inflection points. Happy Trading
APRIL 2013
JPY
GBP
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ATMASPHERE | 19
DX
SP500
20 | ATMASPHERE
APRIL 2013
Copper
GC
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ATMASPHERE | 21
Coffee
Natural Gas
22 | ATMASPHERE
APRIL 2013
Palladium
Alex Bernal is a Chartered Technical Analyst with many years of industry experience in the Equity, Commodity, Currency, Interest Rate and Derivatives markets. He appears on several media outlets, including Bloomberg. Alex currently operates a private technical research and trading systems consulting company Aether Analytics out of Santa Barbara, California. You can reach him at
[email protected] APRIL 2013
ATMASPHERE | 23
BOOK REVIEW – THE COMPLETE TURTLE TRADER
The turtle core rules were:‐ 1. Do not let emotions fluctuate with the up and down of your capital. 2. Be consistent and even‐tempered.
REVIEWED BY MS. PRITI LOHIA 3. Judge yourself not by the outcome, but by the process. The book is written by Michael Covel who is regarded as the “Trend Following Guru” in the western world. He has
4 Know each day what your plan and your contingencies are for the next day.
also written various other books and also produced a movie “Broke: The New American Dream” TCTT is an entertaining and inspiring story of a group of
5. Forget about buying low, holding and selling high. The Turtles were taught to buy when a price was rising and to sell when it was falling.
average people led by a remarkable man Richard Dennis and his partner
Turtles use to deal across asset classes and markets. They were essentially
William Eckhardt.
looking for a trend to emerge. It did not matter whether they were dealing in
The story starts from a differing view of two friends. Dennis had a belief that trading could be taught to anyone where Eckhardt believed that the trading
soybeans or IBM. All they needed to know about the thing being traded was its current price and usual volatility.
talent is inborn. (Many of the institutions still believe the same in the modern
Risk management was at the core of their success. They needed to track how
world.) Their differing views formed the basis for a bet between the two men
much money they had after each trade, because they would trade only a set
and led to one of the more remarkable experiments in investing history.
percentage of what was left.
Dennis forms a diverse group of individuals consist of Security Guard, Sales person, phone clerk, Bartender, Unemployed student etc.
The Turtles entered trades when a market — be it gold, yen or cattle — broke through a recent high or low. They would buy, for example, if the price
He gives each of them $1 million dollars and put them to 2 weeks training
was the highest in the last 55 days. Then they “pyramided” their trades,
where they were taught several rules that have to be followed religiously.
adding money to winners until they reached a predetermined exit point.
Dennis had a belief that trading is not a rocket science; it is just an emotional
Because little losses from “false breakouts” could devour capital, Turtles
makeup.
scaled back their bets during losing streaks.
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Dennis and Eckhardt resembled “a mass merchandiser who sold 90 percent
of their products as loss leaders so they could make a gigantic profit on the
remaining 10 percent.”
Turtles’ philosophy of trading was similar to a book publisher or a film producer who would make a number of films in the hope that at least 20% of
the films or books would be successful on which mega bucks will be made. The book explains the turtle system completely and also traces the path of many turtles after the experiment was called off. Many of the turtles’ post
the experiment went on to become legendary traders and started their own hedge funds while some of them pursued their interest in passions like music
after having made enough money. Would you like to be one of those “turtles”? Go ahead and read the entire
book.
Priti is currently in employment with Destimoney Securities and is a private
trader for HNI clients. You can reach her at
[email protected]
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Women in Technical Analysis A Necessary Initiative:
Are markets a man’s world? Is Technical Analysis a man’s domain? Answer is clearly no, since markets as the final masters are the ultimate level playing field. Yet, for various legacy reasons markets have continued to be dominated by men, so far.
Increasingly a larger and larger percentage of women are excelling at markets and we do know many good Technicians such as Connie Brown, Louise Yamada, Katie Stockton to just name a few have made their mark on the globe! It’s time for India to discover its own Ms. Browne, Ms. Yamada & Ms. Stockton! The goal clearly is also to include any number of women Technical Analysts you know and who are not yet ATMA members, to bring to the main‐stream. Speak to them, let them know the exceptional work ATMA has been producing and get them to become members so that there are at least a 100 women members of ATMA in the very near future to take your representation to at least 20% and hopefully as numbers grow the spiral effect will someday take you closer to 35% or even more than 50%! Of the 500+ members of ATMA active at this point, only 24 are women. That's an abysmal number. The truth is a far bigger percentage of women are technical analysts than the percentage women members in ATMA! Why? I don’t have any good answer, but would guess that networking, professional link building and such other extracurricular activities haven’t been easier for women. Here is a special initiative for You ‐ the women Technical Analysts of India, way more organized, crisper and resourceful than what has been done so far for the general membership, at large. ATMASPHERE 26 |
We've have instituted a separate committee altogether titled, "Women in Technical Analysis". If you can think of a better name that may be turned easily into a good & RESPECTABLE acronym using the first letters of each word, please do suggest. ATMA will fund an extra monthly meeting on any good educational topic EACH Month for AT LEAST the next 12 months under the Women in Technical Analysis series where the speaker, the delegates and the volunteers will all be women. A well appointed 80 seater conference hall with all modern business amenities in perhaps one of the most secure & safe buildings of Mumbai – right at a well known Commodity Exchange is being worked out as a permanent venue! This would make Mumbai the only city in the world of Technical Analysis where there would now regularly be TWO monthly meetings, it would also be a first of its kind anywhere in the world, Educational Monthly Meetings only for women!
So here is a special committee to be comprised ONLY of women, FOR the women and BY the Women at the ATMA. Your mandate as a Committee is way larger: To represent, ascertain, decipher and then achieve the goals for Women in Technical Analysis.
"I am surprised & IMPRESSED that you have critical mass to hold a women‐only meeting! It’s a wonderful thing if you can pull it off. I’d love to speak to the group someday" ‐ Katie Stockton , Vice President, MTA Oh the Women Technical Analysts of India, write to us for membership enquiries on: and for membership@atma‐india.net volunteering on volunteer@atma‐india.net!
Soliciting Women Volunteers: While a formal new fully empowered Committee is being built as “Women in Technical Analysis” you are welcome to join all other Committees too! APRIL 2013
FORTHCOMING EVENTS
ATMA WEBINAR SERIES II
After the success of the Webinar Series I, we now present to you Webinar Series II based on the theory of Elliot Wave by Mr. Rizwan Khan. Mr. Rizwan Khan is a business graduate with more than seven years of experience and expertise in analyzing market trends and identifying trading/investment opportunities in cash/derivatives segment based on advance charting techniques. A qualified CMT, he works with CIMB Securities India Private Limited as Assistant Vice President – Technical Research. He is a well‐known authority on the subject of Elliott Wave Analysis and specializes in analyzing and interpreting market trends through clinical application of NEoWave (Elliot Wave) in conjunction with Classical Pattern Formation, Fibonacci Price etc. Session I – 14th May, 2013 (6.30 pm to 8.30 pm) Introduction to ETW – 2 Broader Classification of Waves –Motive & Corrective Essential tenets of motive waves Session II – 21st May, 2013 (6.30 pm to 8.30 pm) Guidelines of extension and alteration Corrective Waves – Simple & Complex Correction Session III ‐ 28th May 2013 (6:30 p.m. ‐ 8:30 p.m) Corrective Waves ‐ Simple Correction and Complex Correction. Wave Equality and Channeling Technique Session IV ‐ 4th June 2013 (6:30 p.m. ‐ 8:30 p.m.) Fibonacci sequence ‐ Retracement, Projection and extension. Registration fee: Non‐Members: Rs. 2400 /‐ inclusive of taxes. Member Discount: 100%, Members kindly log‐in & Register for the meeting to receive the discount.
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PAST EVENTS’ UPDATES 8th ATMA PUNE MEETING
10th ATMA KOLKATA MEETING
Date: 20th April, 2013
Date: 6th April, 2013
Venue: The Palladian Lounge
Venue: MCCIA Trade Tower, ICC Complex, Pune
Attended by: 24 participants
Attended By: 10 participants
Topic of Study: Hybrid Analysis
Presented By: Mr. Prabir Kumar Sarkar is a technical analyst with experience of over 10 years in equities, Commodities & Currencies. Presently, he is with RASHMI GROUP, Kolkata as Asst. General Manager in Forex and Currency division. Apart from that he is associated with Kalyani Consultancy Ltd which is a financial advisory firm as the Director. He regularly appears on various business channels like CNBC AWAAZ, ZEE Business, NDTV Profit & Bloomberg UTV
Points of Study in Brief:
Topic of Study: Dow Theory in relevance to Today's Trading
Presented By: Mr. Sanjay Narayan Mahajan, ex‐ATMA Pune Chapter Head. An ex‐Cognizant employee and a Chemical Engineer, he is the founder of “Sumo Gains’’, a Research, Advisory and Training company providing training in Technical Analysis. He is currently pursuing his CMT certification.
•
What is Hybrid Analysis?
•
Why, When & for whom the combination of Technical and Fundamental Analysis research could yield optimum results?
Points of Study in Brief:
•
Principles of Dow Theory
•
Profiting from Trends Based on Dow Theory
•
Current Scenario of Various Markets
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13th ATMA Bangalore Meeting
30th ATMA Mumbai Meeting
Date: 21th April, 2013
Date: 21th April, 2013
Venue: Jai Hind College, Mumbai
Venue: Sri Bhagawan Mahaveer Jain College, Bangalore
Attended By ‐ 65 participants
Attended By ‐ 9 participants
Presented by ‐ Mr. Parag Doctor is the Head ‐Trading Strategies at Keynote Capitals Limited. He has been awarded with Masters in Electrical Engineering from the University of Virginia (USA). His previous stints in the career include working as a Business Consultant (Financial Services) at Birla Technologies, Vice President at Marshal Funds in 2003, Head of Derivatives at ILFS Invest smart Securities Ltd Senior Technical & Derivatives Analyst at Motilal Oswal Securities in 2010 until 2012.
Presented by ‐ Mr. Sangamesh K. S holds two and half years of Experience conducting experiments on chats, patterns, moving averages, indicators and parameters. He is a blogger, writes articles on stock markets. He did Bachelor in Business Management (Marketing) and currently doing his Masters in Bapuji B‐School (BIET‐ MBA), Davangere. Topic of Study: Using Triangles in Technical Analysis Points of Study in brief:
Topic of Study: Use of Options with Technicals, Trade Management & Market Psychology Points of Study in brief:
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What are triangles & why they are formed?
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Types of Triangles and how to trade them?
• Introduction to Options
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EWT’s perspective of triangles
• Option Greeks & Internals and Risk management
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Using indicators &triangles
• One‐legged, two‐legged and three‐legged strategies
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Do patterns really work?
•
Sleeping Triangles (An research and findings)
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Longer Term Options & Calendar / Diagonal Strategies
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Benefits of Membership with the ATMA
Apply for your ATMA Membership Today! APRIL 2013
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