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How To Make A Full-Time Income Trading Less Than Part Time

Big Dogs Exposed

Sound familiar? You have spent years surfing the 'Net, and studying books and charts in search of commodity trading rules, a currency trading strategy, stock market successful trading strategies, or information on how to use commitments of traders data. All you really want is the 'Holy Grail' of entry techniques. You usually end up adding one indicator on top of another, switching from one guru to the next, until you are so confused and unsure of your entry system that you are unable to make entry decisions and stay organized. You get so distracted and frustrated that you quit watching the markets all together!

Shows you how FAST you can make money when the BIG DOGS make their move - by shamelessly copying this winning group . Even I am STILL surprised by how much power they have over ALL markets - not just commodities futures, currencies, and stocks.G

Newsletter: Futures Stuff

This information is provided in support of the TradingSmarts Newsletter, which caters to those traders in search of commodity trading rules, a currency trading strategy, and stock market successful trading strategies. If you haven't yet subscribed, you can do so by going to www.tradingsmarts.com and accepting the invitation when you click away.

Futures Stuff:

Futures: A real mish-mash of stuff – Backwardation, Bonds, Commercial Traders, Commodities, Contango, Federal Reserve, Futures Pricing, Government Deficits, Interest Rate Futures, Investment Funds, Supply and Demand, World Economy, Yield Curve, etc. (credit Jeff Neal, Optionetics.com) –

Interest rate contracts are probably the most liquid of all futures contracts you can trade. Their movements can give you some important clues on macro economics.

Interest rates are the price of investment funds. Low rates signify that demand is anemic, or supply is abundant. High rates, on the other hand, imply that demand outstrips supply.

The supply side of long-term bonds consists of bonds being issued in the now, and in the past – corporate and municipal, which are interchangeable with each another. The demand side is made up primarily of financial institutions, pension funds – and insurance funds in particular.

Long-term U.S. government bonds carry interest rates that comprise a real rate of return, plus an inflation premium. Expectations determine the amount of the premium. Actual experience over the previous few years is factored into these expectations. Investors’ reading of the Fed’s resolve to keep inflation in check or not also plays a role.

Short-term interest rates are more dynamic.

Enter the yield curve, which impacts bond pricing. A positive yield curve is synonymous with the shortest-term maturities having the lowest yields. With a negative, or inverted yield curve, the shortest maturities have the highest yields, and the longer-term maturities have the lowest ones.

The yield curve bears similarity to the pricing structure of other futures markets. The lowest prices occur in the nearest months (called ‘contango’) in the carrying charge market, or normal market – the highest prices in the nearest months (called ‘backwardation’) in an inverted market. The scarcity of inventory or product precipitates inverted commodity markets. Correspondingly, tight money supply results in a negative yield curve.

Putting it another way, from a trader’s perspective, where you see ‘contango’ in effect, that is not necessarily a trading signal unto itself. Other factors have to be taken into consideration, before making a decision to trade the underlying commodity.

‘Backwardation,’ on the other hand, is a ‘buy’ signal, regardless of what other technical indicators suggest, because the product is in demand by the commercials. However, entry points should be picked through pure technical analysis, reacting to bona fide trigger points.

The Federal Reserve effects easy or tight money through its open-market operations. The Fed probably does not have that much control over bond prices per se. However, it can influence short-term rates considerably.

The Federal Reserve operates in two ways: It either controls interest rates, or it controls the growth of money supply, letting the market determine the appropriate rates. Accordingly, one has to anticipate the Fed’s bias in order to trade short-term interest-rate futures smartly.

Short-term rates are a function of supply and demand, except where the Federal Reserve is intervening. Supply comes from institutions and individual savings – demand, from government and the private sector. The private sector is the swing component in credit demand.

High government deficits and high rates go hand-in-hand, if there is any strength in the economy. High rates impede private sector credit demand, but not Government demand. Prolonged high rates usually culminate in a recession, and collapse private credit demand.

Predicting futures prices necessitates that one have an understanding of the world economy, interest rates, and the U.S. dollar – in terms of what is happening in those three respective areas. An appreciation for those fundamentals is a prerequisite to trading such markets as currencies and interest rates. Further, what you glean from the implications of interest rate movements can affect your strategy with respect to other futures markets – even more so than any other indications.

For more on trading commodities futures, please read my May, 2003 Newsletter by clicking here: commodity trading rules

To read other interesting articles, please go to: commodity trading rules, currency trading strategy, and stock market successful trading strategies

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How To Make A Full-Time Income Trading Less Than Part Time

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