Oil Prices Up On Egypt Crisis and Drop in US Supply.

The market is being guided higher by an up-trending Gann angle from the April 2013 bottom at $86.29. speculators went after the last swing top at $99.21, putting the market in a position to challenge a top from May 2012 at $104.50.

Further rally is now expected to head back to 110.55/114.83 resistance zone. On the downside, break of 100.94 is needed to indicate short term topping. Otherwise, outlook will stay bullish.

The market is being driven higher for two main reasons. Firstly, the American Petroleum Institute reported a drop in supply by 9.4 million barrels last week. The decline of nearly 10.0 million barrels was the biggest reduction in more than 10 years. The draw-down took traders by surprise, triggering the sharp upside breakout. The rapidly tightening supplies could mean the start of long uptrend.

The unrest in Egypt is the second key reason why crude oil prices are rising. Bullish speculators fear a disruption in supply because of the lack of stability in the region. These speculators are betting the political turmoil will lead to a disruption in the transportation of nearly 2.4 million barrels per day of oil.

During the past week, Egyptian President Mohamed Mursi rejected an army ultimatum to leave office. Other than the street violence, traders haven’t seen any military action yet, but based on the size of the move this week, speculators are anticipating…

3 Bias That Affect Your Trading. What is Bias Mind ?

What is the meaning of BIAS ?

Biases are human tendencies that lead us to follow a particular quasi-logical path, or form a certain perspective based on predetermined mental notions and beliefs. When investors act on a bias, they do not explore the full issue and can be ignorant to evidence that contradicts their initial opinions. Avoiding cognitive biases allows investors to reach impartial decision based solely on available data.

There are 3 bias that will affect one’s trading:

1) Gambler’s fallacy bias

People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?

It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.

Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.

2) Limit profits and enlarge losses bias

People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn't hold a little longer (sounds familiar?).

One of the most important principle in trading is contrary to what most investors do – Traders have to LIMIT LOSSES and let PROFITS RUN. Losses are part and parcel of trading and hence, it is crucial to protect the capital from depleting too much – live to fight another day is the mantra for all traders. Large profits are thus required to cover the small losses – so do not limit profit runs.

3) I am right bias

Humans are egoistic in nature and we want to prove that we are right. High accuracy is not important in trading but making more money when you are right is. Remember what George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Traders Should Remember These Points

Kill your greed 
Money comes in bunches 
There is never a shortage of opportunities 

Focus on proper execution 
Stay in control 
Stay calm and focused 

Always strive for emotional detachment 
Don’t compare yourself to others 
Never make excuses 

Cultivate independent thinking

Don’t believe the hype 

Isolate yourself from the opinions of others 

Always use stop losses 
Never add to a losing position 
Be ready for worst case scenarios 

The Story Of 2 Monks And The Power Of Letting Go - Successful Trader

I believed you have heard of many versions of the story about 2 monks. No? Let me refresh your memory, and explain to you how it is applicable to trading.

There were two Buddhist monks walking along the bank of a river, making their way to back to the temple.

As they were walking, they came across a beautiful lady standing at the side of the river. She stopped them and asked if one of them is willing to help her across the river. The junior monk did not bulge but the senior monk without any doubt, carried her on his back and across the river. The senior monk put her down on the other side and she thanked him profusely and hurried off. The junior monk was taken aback by the gesture but kept to himself. The senior monk returned and they carried on with the journey.

As they walked, the junior monk kept brooding about the incident until it was unbearable and broke the silence, “why did you carry that woman across the river? Knowing that our religion forbid us to touch women!” The senior monk replied peacefully, “I put her down a moment ago and you are still carrying her.”

Now back to you: Are you the junior monk? I believed at some point in time, we have this junior monk in us, such that we are not able to let go of the past, and let it affect our decision making and even our well being (since we will brood about it). Carrying emotional baggage is more tiring than carrying a physical baggage.

A successful trader is a senior monk, he will not carry the emotional baggage of a losing trade. He cut loss and move on with other trades. An amateur trader may cut loss but is emotionally affected by it. He will not be able to trade well subsequently and even worse, forgo the rule of cutting losses and end up with a loss bigger than what he can handle. The problem is no one likes to lose. But in this world, there is no 100% way of winning every trade that you made. Even Warren Buffett is wrong sometimes. If you cannot take the risk of losing, do not trade. If you want to trade, let go the fear of losing, and let go of the dejection when you lose.

What is the meaning of ARBITRAGE ?

The simultaneous purchase and sale of similar commodities in different markets to take advantage of price discrepancy. 

What does it mean?
Arbitrage involves buying an asset in one market where the price is low, and at the same time selling the same asset in another market where the price is higher. The arbitrageur aims to take advantage of price discrepancies between the two markets with the view of profiting from this so-called risk-free series of transactions.

What is the meaning of HEDGING ?

Hedging involves offsetting an exposure to the price risk of one market by taking out an equal but opposite position in another market.

What does it mean?

Hedging is a sophisticated strategy regularly employed by the big end of town such as professional traders and fund managers, particularly hedge fund operators. Many say that CFDs are one of the best hedging tools around, which means that hedging strategies are now available to ordinary investors as well.

Hedging your bets can feel a bit like you’re trading against yourself because in a sense you are. You are simply aiming to reduce your risk.

Let’s say that you hold a sizeable share portfolio consisting of BHP Billiton, Rio Tinto, a couple of the big banks and so on. Heightened sharemarket volatility and bad news emanating out of the US is making you nervous. Rather than panicking, and calling your stockbroker to sell you out of the lot (remember, there are tax consequences to deal with when you sell), you could short sell a CFD over the index, such as the S&P/ASX 200 instead. This means that if the overall market does fall, you will make the equivalent gains on your CFD trade. If the market continues to go up, well losses on the CFD trade are compensated by gains in your share portfolio.

What is the meaning of LEVERAGING ?

Investing with borrowed money to boost potential gains at the risk of greater losses.

What does it mean?

If you have a spare $10,000 and invest it in shares which go up 10 per cent then you will have made $1,000. If instead you use not only your own $10,000 but also $40,000 of someone else's money then you can buy shares costing $50,000 and if they go up by the same 10 per cent then you will have made $5,000 instead of just $1,000.

This is known as "leverage". It can be achieved in various different ways, all of which have some advantages and some disadvantages. Popular ways to gain leverage are margin lending, instalment warrants and Contracts for Difference (CFDs).

Leverage is a two-edged sword. In the example above, if the shares go down 10 per cent, then you will have lost $1,000 using just own money but $5,000 if you use $40,000 of someone else's money as well.