Trading ETF Futures Contracts

Exchange Traded Funds (ETFs) are regarded as the most successful trading instruments introduced in the last two decades. They are traded just like stocks, are tax efficient, are less expensive, and are a good way of diversifying portfolio. Chicago Mercantile Exchange (CME) has also introduced standardized futures contracts on ETF in 1997. CME offers electronic trading of 3 different ETF futures contracts.

1. S&P 500 Depository Receipts (SPY) futures: Futures contract worth 100 SPY shares which track large-cap stocks.
2. Nasdaq 100 Index Trading Stock (QQQQ) futures: Futures contract worth 200 QQQQ shares which track top 100 non-financial stocks of Nasdaq.
3. iShares Russel 2000 index fund futures: Futures contracts worth 200 iShares Russel 2000 index which track small-cap stocks.

There are many advantages of trading ETF futures over ETF shares. ETF futures are standardized contracts with specific expiration or settlement dates and traders have option to cash settle or to own underlying ETF shares. With ETF futures it is easy to go short with out actually burrowing shares, they lower capital requirements, can be daily settled and are easy to leverage. Two other great futures advantages include diversification of portfolio and hedging against portfolio risk.

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Fibonacci Cluster Technical Indicator

Fibonacci cluster is an advanced Fibonacci technical indicator used extensively by traders of all kinds to find support and resistance levels and to predict trend reversals. Fibonacci clusters are easy to interpret and are easy to use in conjunction with other technical analysis tools.

Fibonacci cluster is a collection of a number of Fibonacci retracement lines represented in different shades. Different trading systems use different methods of representing them; the most popular method of representing Fibonacci cluster is in a side bar of a price chart. The more the number of retracement lines meets in a price level, the darker will be the shade of Fibonacci cluster corresponding to the price, and the strong the support/resistance level is.

Traders can also create Fibonacci clusters manually by drawing new Fibonacci retracement lines over and over a volume/price graph (better if you use different colors each time). The more the numbers of lines at a price level the more the chance of being it a support/resistance level. It is advised to always use Fibonacci clusters in conjunction with other technical indicators and Fibonacci techniques, where clusters can be used to identify a support or resistance level and some other indicator to confirm it.

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Fighting the Tape and Painting the Tape

Both fighting the tape and painting the tape are trading practices to be avoided. Fighting the tap is a trading practice where traders act against the ticker tap. That is they buy when stock prices are falling (bearish market) and sell when stock prices are rising (bullish market).

In opinion of experts fighting the tape is a deadly sin which can destroy a trader’s future. Major reasons for fighting the tape are over-optimism, over-confidence, greed, fear of loss, unavailability of inadequate data, using of wrong tools for technical analysis, and wrong interpretation of news and info.

Painting the Tape is an illegal trading practice where some traders manipulate stock price to profit from it. They buy and sell stocks in high volumes and high prices. On ticker tape report this scenario creates a feeling on other (unsuspecting) traders that the stock is good to trade or invest. As a result the stock price moves to even higher levels and the original traders profit from this. At some time later, when traders realize the stock is an over-valued, price drop considerably resulting in heavy loss to traders holding them. The increased use of automated trading systems to generate buy and sell signals by traders also helps painting the tape traders considerably. Technical analysis and rightly interpreting info are measures of avoiding painting the tape stocks.

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Forex Mini Accounts and Trading Risks

Mini forex trading accounts are an excellent option for beginner traders to get familiar with forex market. Mini accounts (contract size 10,000) are typically 10% of standard accounts (contract size 100,000), and also require low minimum deposits to open the account.

Mini forex trading accounts are excellent tools to decrease trading risks. For a mini trading account a 10 pip loss (For example: a decrease of EUR/USD from 1.5689 to 1.5679) can result in that is 1% of the trading account. For a standard trading account the same 10 pip loss can result in a loss of $100 (100,000 x 0.0010), which will be equal to 10% of a mini account. Also remember the usage of leverage can magnify this loss; and also profit if currency moves in opposite way. Many expert traders advice to keep the maximum loss per trade to below 3% of total portfolio; which can be easier to achieve by mini accounts than standard accounts.

Mini forex accounts provide more flexibility than standard accounts. Mini trades can trade fractions of standard accounts (contact sizes of 20,000, 30,000, 50,000, etc) or you can trade 10 minis to equalize a standard lot. This gives the trader to adjust his contract size according to his trading account size and also helps in effectively utilizing leverages. When trading lesser lots, mini accounts allow traders to place wide stop losses.

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Weekly Stock Market Information Letter, July 14, 2008

The Week Ahead: Stocks fell for the sixth straight week while bond yields rose as Fannie Mae and Freddie Mac's stock price collapsed losing almost half there value. This has cast a cloud over the specter of a market turnaround, but Fed chairman Bernanke begins his Capital Hill testimony on Tuesday which could ease investor fears. Also look for the PPI and business inventory reports. Wednesday, the CPI, industrial production, and the FOMC Minutes release from last months policy meeting will be in focus. Thursday brings the housing starts number.

Stocks to Watch: Shares of URS Corp. (URS) jumped significantly based on a pending contract to build a nuclear complex in the United Kingdom. Jacobs Engineering (JEC) was added to Goldman Sachs "buy list" after saying it recently became oversold. Webster Financial (WBS) boosted its 2nd quarter loss provision to $25 million from $10-15 million as its stock touched a new all time low. Teva Pharmaceutical shares were off on a threat of generic competition from rival company Momenta.

Special Note: The Dow Industrials and S&P 500 appear to be readying to test or breach their 2006 lows of 10683 and 1219 respectively. If broken would open the door to more selling pressure. Similar to what happened with the Bear Stearns rescue at the March lows, a resolution to the crisis surrounding the government sponsored entities of Fannie Mae and Freddie Mac could be the event that marks another turning point for stock markets here and around the world.

Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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Managed Futures Trading Accounts

Managed futures accounts are futures trading accounts which are managed by professional money managers on behalf of their customers. These money managers are known as Commodity Trading Advisors (CTAs), who are registered under Commodity Futures Trading Commission (CFTC). They buy and sell futures contracts in a discretionary or predefined basis.

There are a wide range of managed futures trading programs offered by CTAs. Some programs concentrate only on one or two futures contract types – like metals (gold & silver), equity futures (S&P & Dow futures), grains (wheat & soybeans) or soft futures (cotton & sugar). Other programs concentrate on trading a mixture of futures types. Some CTAs are trend followers, some are market neutral traders (or option writers), while some others are long-term traders. Fees that CTAs charge for managing accounts can also vary considerably; usually includes management fee and performance incentives.

• Managed futures trading accounts are considered as a good investment option because of a variety of reasons. They are an easy way of diversifying portfolio.
• They are good hedging tools against portfolio risk.
• They are professionally managed, and do not require any investing/trading knowledge from clients.
• These accounts can be opened with relatively low capital investment.

Things to consider when choosing a CTA for Managed futures trading include their futures trading plan, types of futures they are trading, drawdowns, past performance, fees involved, annualized rate of return and risk adjusted return.

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Fibonacci Extensions Technical Indicator

Fibonacci extensions are an advanced Fibonacci application, which are widely used by traders and investors. They help traders in figuring out the future support and resistance levels of a trend beyond 100% retracement level.

Fibonacci extensions are horizontal lines plotted on key Fibonacci ratios beyond 100 (these ratios are derived by adding standard Fibonacci ratio to 100; eg: 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8%, 423.6% etc.). Most popular of these ratios are 161.8% and 261.8%.

Fibonacci extensions can be applied to both downtrend and uptrend. Many traders close their positions when prices touch Fibonacci extension levels. For an uptrend beyond previous swing high, extension level of 161.8% is predicted as the future resistance level and 100% level is taken as support. Similarly for a downtrend beyond previous swing low, Fibonacci extension of 161.8% is predicted as support level and 100% as resistance level. But if the trend is significantly strong, then the prices can easily cross 161.8% level, then the next extension level (usually 261.8) is taken as resistance (for uptrend) or support (for downtrend).

Many modern trading systems allow traders to plot Fibonacci extensions. When employing these tools it is advised to use in combination with other technical analysis tools to find out strength of trends and target prices.

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