Understanding Technical Analysis of Stocks, Futures and Commodities

Understanding Technical Analysis of stocks, futures and commodities can be a valuable tool in determining the trend of any market and assisting with entry and exit levels for your trades.

The goal of technical analysis in the stock, futures or commodities market is to help us determine when a market is trending, and when it is not. If a stock or futures contract we want to trade is trending, then we want to be on board. If it’s not, all you are going to do is lose money as you get whipsawed around day after day. This is not what we want as traders

If you trade using a weekly chart, all it takes is a couple of trends a year to make a lot of money trading. If you trade something like that S&P Emini futures contract, using a 3 minute chart, then you’ll need one or two of these strong trends a day to do well, but it’s all relative.

Unfortunately, many people fight the trend and buy at every small up tick in a down-trending market, thinking they have picked the bottom, only to see the Stock or index fall further immediately. By the time the sellers are finished, these traders have spent their monetary and psychological capital in a futile attempt to pick the bottom of the market.

Another common mistake traders often make is buying more as the price falls, or averaging a loss. You can imagine how dangerous this strategy can be in a strongly down-trending stock – it’s something good traders never do. The trend is your friend, don’t ever buck it.

Good technical analysis skills, especially in fast moving futures and commodities markets, give us a mechanical indicator for price points to use for entries and exits and take a lot of the guess work out of our trading. It is very hard to argue that the trend is anything but down at any time if you are simply looking at a series of consistent lower tops and bottoms on your chart.

Does good technical analysis mean you’ll always make money?

No, of course not. Losses on some trades are inevitable, as we cannot know for sure what the market will do. It only takes one person somewhere in the world to invalidate your perfect trade set-up and send the price of any market in the opposite direction to what you were certain was going to happen.

All our analysis can do is alert us to probabilities – there are no certainties in financial markets. This is the hardest thing for most traders to accept. We all hate to be ‘wrong’, but that is the nature of the trading business.

All we can do is take every trade and see what happens. The better our analysis and our trading system, the more likely our trades will produce profits.

Every one of us must learn or develop a system of analysis that we are comfortable with, based on what we learn from other traders, mentors and coaches, and then we must take every trade that system signals.

If we start to second guess our system, we may as well throw it away and just stick with our day job.

Make a decision to develop or learn a technical analysis system you are happy with, and commit to taking 20 trade set-ups in your preferred stock, futures market or commodity no matter what.

Then follow your trading rules to the letter. This will give you an objective measure of how profitable your system is and whether it is right for you.

If you can enter a trade and hold a position, your plan is sound. If not, you may be over-trading (have too many open positions for your account balance and your personal temperament) and need to reduce the size of your position or adjust your plan is some other way.

The large profits come from using a proven technical analysis method to identify a strongly trending market and taking multiple positions with that trend.

This naturally involves holding firm and not jumping out at the first sign of trouble. Of course, you can only take what the market is prepared to give, so a system of trailing stops is a good way to lock in profits as they accrue.

Bottom Line: Find a trading and analysis system that’s been proven to work from somebody who has been actually trading it for a long period of time, have that person coach you through their system until you can implement it flawlessly, then take every trade signal the system produces regardless so you can test it’s validity.

All great athletes, business people (and yes traders) have a mentor or role model who they turn to for advice and guidance. Find one for yourself and your results as a stock, futures or commodity trader are bound to improve.

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Understanding the Gold Silver Ratio and How to Swap

Swapping the Gold/Silver Ratio – Seeking a 15 – 35% Return With No Cash Outlay

The upward trend in the metals has many investors owning both. But, there’s more you can do with gold and silver bullion than just buy and hold. You can also periodically trade, or “swap”, one for the other. To do so successfully, you first need to understand the gold/silver ratio.

The gold/silver ratio tells you the number of ounces of silver it would take to purchase one ounce of gold at a specific time. If you examine gold and silver prices going back 4,000 years, will find:

The historical ratio is 16:1 (it has taken 16 ounces of silver to buy 1 ounce of gold)
For the last 100 years, the ratio has been 30:1
In the last 12 years, the ratio has held closer to 60:1
In just the past the past 5 years, the ratio has fluctuated from the low 40′s to almost 100
As of March 1st, 2011, the gold/silver ratio was sitting slightly below 40:1
How do we take advantage of this fluctuation?

First – we time our purchases based on the ratio. When the ratio is relatively high, we favor silver in new purchases. When the ratio is relatively low, we favor gold.
Last – we act when the ratio reaches tops and bottoms. When the ratio is high, we swap gold for silver. Then when the ratio drops, we swap silver back into gold. Said another way, we swap silver for gold when silver has appreciated faster than gold. Then, we swap gold back into silver when silver becomes “cheap” relative to gold. Every time we go through this cycle – gold to silver and back to gold – we increase our ounces. That’s the whole objective. For example:

Suppose you had one ounce of gold, and the gold/silver ratio rose to 80:1. You would swap your one ounce of gold for 80 ounces of silver.

When the ratio contracted to 40:1, you would swap your 80 ounces of silver back for 2 ounces of gold, doubling the number of ounces you hold.
Next – we buy the form of silver or gold that offers the possibility of greater profits. During periods of high demand, investors will often bid up the premium on certain items 20 to 40% or more of their underlying value. At that point, we can swap the high premium items for others with lower premiums – capturing much of the difference, and converting that difference into extra ounces of metal.
Plus, utilizing this technique does not require any additional monetary outlay. Taking advantage of this ratio strategy beats the alternative – sitting still waiting for the price to rise.


Taxes – If you realize a profit from the transaction, you may owe tax on the gain. We do not offer tax advice. Please consult your tax specialist.
Market risk – I do not determine swapping price points independently. Rather, I lean heavily on others in the industry that have also been practicing technique for decades. The market may not cooperate. The challenge is correctly identifying the swapping points based on the relative valuations between the metals. The ratio might move much higher or lower than our target. We would then need to wait longer for the ratio to readjust itself. This is the essential risk to those trading the ratio.
Costs – Transaction costs such as shipping, the bid-ask price spread and commission can reach as much as 8%, although they should be lower. We will need to hold the trade long enough to recoup the transaction costs. Transaction costs associated with trading physical metals are higher than trading ETF’s, futures or other paper instruments. In order to keep your costs low, we charge only one-half of our normal commission for a swap transaction. Many others will charge a full commission on both the buy and the sell side. Be careful.

More Ounces at no cost – The Gold/Silver ratio trading strategy takes an investment that is otherwise stagnant and creates growth by increasing the number of ounces you hold – with no additional cash outlay. Between now and the end of the bull market you should conservatively expect to double your ounces utilizing this strategy.
What You Need to Know

When I first started to buy metals almost 20 years ago, my mentor frequently reminded me that he was not a prophet. In the same vein, if I am wrong about gold/silver ratio, it will cost you money. You’ll buy silver instead of gold and the gold will outpace the silver, or vice versa. I don’t think that will happen. Or, if it does, it will be temporary. I have successfully deployed this strategy numerous times. Sometimes the time-frame between swaps is relatively short – maybe only a few months. Other times it has taken two years or longer.
I am recommending swapping silver for gold when the gold/silver ratio drops to 48 or less. Consider swapping more if the ratio drops further. We will then seek the opportunity to swap that gold back into silver, capturing that gain in additional ounces of silver.
Because there are commissions and other transaction costs, you will not realize exactly the same ratio as the spot ratio.
The swapping strategy works for both small and large investors as long as you are willing to swap (150) ounces of silver or more. We will swap into the lowest cost, most readily available, most liquid gold coins – whatever offers you the most gold for your silver.
This is not a solicitation, only a strategy. Please do your own due diligence and make your own investment decision.
I still ultimately favor silver over gold as I remain convinced that the ratio will reach 16:1 (or lower) at the top of this bull market.

It is impossible to swap an exact amount of one metal for the exact amount of another. For example, one ounce of gold might buy 50.17 ounces of silver, but never exactly 50 ounces even. I do my very best to swap as close to even-up as possible. The residual we will settle in cash. You may owe a small amount, or you may be due a small amount. I attempt to keep these amounts under $100.
The gold/silver swapping opportunity is presenting itself intermittently. If you are interested in learning more on how you might increase your metal holdings by 15 to 35% or more, with no cash outlay, please contact us. The window of opportunity is very narrow.

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