Stocks Slip After Data Released on Consumer Spending, Manufacturing

NEW YORK (AP) -- Stocks dipped Friday, the last trading day of the third quarter, as Wall Street mined mixed economic reports and remained cautious ahead of the upcoming earnings onslaught.

The stock market appeared wary of strong economic news, which could lower the chance of another rate cut. Last week, the Fed helped restore some confidence in the financial markets by reducing the target federal funds rate by a half point.

The Commerce Department said consumer spending increased 0.6 percent in August, the fastest growth in more than two years. Meanwhile, Chicago's National Association of Purchasing Management said business activity in the heavily industrialized Chicago area increased in September by more than analysts expected, and the University of Michigan said consumer sentiment during the month has held steady.

Also weighing on investors Friday was lingering concern that corporate earnings power was lessened in the third quarter. This is the last trading day of one of the most volatile periods in years -- one that pulled stocks sharply lower after the Dow Jones industrial average closed at a record 14,000.41 in mid-July.

Still, though energy and food prices are surging, core inflation appears to be under control, which is keeping rate cut hopes alive. The Commerce Department report showed that a closely watched gauge of core inflation showed a year-over-year rise in August of just 1.8 percent -- the smallest increase since a similar rise in February 2004. The reading is within the Fed's comfort zone of 1 to 2 percent.

"A second Fed cut will go a long way in reassuring the stock market that the worst is over. The focus going forward will be whether the Fed is going to lower rates to shore this up, or decide the risk of inflation is too high," said Janna Sampson, director of portfolio management at Oakbrook Investments.

The Dow shed 15.77, or 0.11 percent, to 13,897.17.

Broader indexes also declined. The Standard & Poor's 500 index fell 4.14, or 0.27 percent, to 1,527.24, and the Nasdaq composite index fell 6.86, or 0.25 percent, to 2,702.73.

Bonds rose, pushing the yield on the 10-year Treasury note down to 4.54 percent from 4.57 percent late Thursday.

The dollar fell against most major currencies as inflation appeared to be easing. The euro surpassed $1.42 for the first time, hitting a record against the U.S. currency for the seventh straight session.

The dollar's weakness has bolstered commodity prices throughout the quarter, and helped lift prices again on Friday. Crude oil prices rose 45 cents to $83.33 on the New York Mercantile Exchange.

"We're going to see crimped corporate profits if they eat those costs, and inflation if they pass those down. Neither of those are good," Sampson said.

In corporate news, shares of 3Com Corp. shot higher after the telecommunications equipment company said it will be sold to affiliates of private equity firm Bain Capital Partners LLC for $2.2 billion in cash. 3Com rose $1.28, or 34.8 percent, to $4.96.

As the tumultuous third quarter draws to a close, investors appear a bit less concerned about the tightening in the credit markets that sent stocks plummeting in late July and August. On Thursday, the Fed said banks slowed their borrowing from central bank this week to the smallest amount in six weeks, after a huge spike last week.

But while most market watchers agree that conditions have improved, the credit markets still don't appear they are back to operating normally. Levels of outstanding asset-backed commercial paper fell about 17 percent in the week ending Wednesday -- not as steep a decline as seen a few weeks ago, but still suggesting that demand isn't meeting supply.

Meanwhile, the bulk of third-quarter earnings start pouring in in mid-October, which should give investors a better idea of how companies weathered the summer's tumult and what they expect in the coming months.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 285.9 million shares.

The Russell 2000 index of smaller companies fell 4.68, or 0.57 percent, to 809.33.

In European trading, Britain's FTSE 100 fell 0.30 percent, Germany's DAX index fell 0.10 percent, and France's CAC-40 fell 0.31 percent.

In Asia earlier, Japan's Nikkei index fell 0.28 percent and Hong Kong's Hang Seng Index rose 0.29 percent.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

Be Careful, Someone Wants Your Money

The United States Commodity Futures Trading Commission (“CFTC”) warns consumers to take special care to protect themselves from the many types of commodities fraud being perpetrated in today’s financial markets. The CFTC is the federal agency that regulates commodity futures and options markets in the United States. We have seen a great increase in the number of scams that falsely promise high profits with low risks. Many of these scams are targeted at ethnic communities in their language, from New York to South Florida and from the Southwest to California, among other areas.

The public should be wary of any firm that offers to sell commodities or commodity futures or options. They might be selling precious metals, such as silver or gold, or on foreign currency, such as Euros, Yen or Deutschmarks. They might be selling futures or options on precious metals or foreign currency, or on other commodities such as crude oil, heating oil, unleaded gas, or agricultural products such as corn, soybeans, or cattle. The firm might be offering to manage your money for you to trade in commodity futures or options, or to pool your money with other customers. If a firm offers any of these investments, and promises high profits and low risks, or claims that they have made profits for all of their customers, you should not believe them without proof. The commodities and futures markets are very risky, and you can lose your entire investment very quickly. Anyone who claims otherwise might be breaking the law.

Foreign currency trading scams often attract customers through advertisements in local newspapers, radio promotions or attractive Internet sites. These advertisements may tout high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly. Precious metals scams often work the same way.

Commodity pool operators often solicit investments from friends, neighbors, co-workers and fellow religious or social group members by using their reputations in the community or their personal relationships. In many cases, however, the investment schemes turn out to be fraudulent, and investors lose their entire investment, in many cases as a result of outright theft. Individuals and firms that fraudulently solicit funds from investors for commodity futures and options trading are usually not registered with the CFTC. They may operate “Ponzi” schemes in which little or none of the money sent in by investors is ever invested as promised – in the commodity markets. Instead, the operator of the scam steals the funds, and creates the illusion of a successful business by using some of the money put in by later investors to pay phony “profits" to
earlier investors. This tactic makes it appear to investors that the investment is actually making money, which in turn attracts additional investors. Be wary of such payouts if you do not fully understand the source of any purported profits.

Introducing Brokers often use advertisements on radio and television, as well as infomercials – program-length television commercials – to promote commodity futures and options. These advertisements may claim that seasonal trends in the demand for certain commodities or well-known current events create an opportunity to make big money by trading in commodity futures and options. The advertisements and infomercials promise quick riches – such as turning $5,000 into $20,000 in just a few months – with predetermined risk. The CFTC has brought actions against wrongdoers who lured customers by claims that one could earn large profits with little risk based on predictable seasonal demands, published reports, or well-known current events.

Forex Money Management

Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.

It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade.

There are different money management strategies. They all aim at preserving your balance from high risk exposure.

First of all, you should understand the following term Core equity
Core equity = Starting balance - Amount in open positions.

If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$

It's important to understand what's meant by core equity since your money management will depend on this equity.

We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.

Money management strategy

Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = 1,000$
1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.

Diversification

Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$ balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rd position and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$

It's important that you diversify your prders between currencies that have low correlation.

For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD and GBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction.

If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then you can trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position.

The Martingale and anti-martingale strategy

It's very important to understand these 2 strategies.

-Martingale rule = increasing your risk when losing !

This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etc

This strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is that the odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be made by some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$. The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If he lose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use such gambling method unless he wants to lose his money in a short time.

-Anti-martingale rule = increase your risk when winning& decrease your risk when losing

It means that the trader should adjust the size of his positions according to his new gains or losses.
Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$
After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$

Trader B starts with 10,000$.His standard trade size is 1,000$
After 6 months his balance is 8,000$. He should adjust his trade size to 800$

High return strategy

This strategy is for traders looking for higher return and still preserving their starting balance.

According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk 1%) After 1 year,your balance is 15,000$. Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking more from this profit while restricting your initial balance risk to 1%. For example,you can calcualte your trade in the following pattern:

1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit)

In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit.

Disclaimer: Trading any financial market involves risk. This course and the website www.fxmaster.net and its contents is neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this course are for general information purposes only. The information provided in this course is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. We reserve the right to change these terms and conditions without notice.

Why Is Day Trading So Difficult?

There are three main reasons why day trading is so difficult:

1)When day trading, trading time is compressed. Losses and wins come at you faster and more often which requires a mature, developed psychology to properly handle that kind of instantaneous feedback in such a short period of time.

2)You must develop the psychology not to be seduced by the open market. Trading must remain emotionless and objective.

3)Your day trading results can be highly impacted by trading at higher time frames and the shorter your time frame, the greater this effect will have on you.

The psychology of day trading requires you to not let a string of losses or wins that occur in a short period of time affect your mental state. A frail ego or mind will not do well in handling the results of immediate trade feedback in such a compressed amount of time. It will be too over whelming and may cause incredible frustration and a feeling of hopelessness. This is why position trading using daily charts is recommend for new traders because it allows them time to absorb trade feedback in a manner they can handle while they get a grasp of their trading results.

The open market can be quite seductive especially to the new trader. Day trading requires that you make trading decisions based on sound judgment and analysis void of emotion. New traders that day trade have a tendency to become seduced by the excitement of the open markets and therefore often become emotional traders acting on impulse rather than sound analysis and judgment.

When comparing day trading to position trading, it is easy to see that position trading requires using higher time frame charts like the sixty minute, daily, weekly, and even in some cases the monthly chart. If you are position trading using a daily chart you don’t have many time frames above you that could impact your trading. Compare this to day trading where many time frame are above you. If you are day trading using a one minute chart for example, you have the three, five, ten, fifteen, thirty, forty five, sixty, daily, and weekly traders above you. As a one minute trader you have many traders above you that can throw off your trading approach no matter how good it is. As a position trader, you may have only the weekly and monthly traders above you who do not trade that often.

The differences between day trading and position trading can be as distinct as the difference between day and night. Your success will all depend on your psychology, trading abilities, skills, and your aptitude. As a new trader you will more than likely need to walk before you run, and believe me, day trading is running!

Why is the Forex market attractive to investors and home-based traders?

Professional investors for individual accounts have dramatically increased their level of participation in the cash Forex markets in recent years. Add to this the growing use of cash Forex by individual investors and home-based traders, and you have a rapidly growing industry of cash flow creating profits whether the market goes up or down.

The Forex is very liquid, and this market can absorb trading volumes and per trade sizes that diminish the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor or independent trader as it suggests the freedom to open or close a position at will.

A substantial attraction for participants in the Forex market is the 24-hour nature of the market. In Forex, a participant need not wait to react to an unfavorable event, as is the case in many markets.

Many professional investment managers have a particular time horizon in mind when they establish a position. In the Forex market, a position can be established for a specific period of time, which the trader desires.

Because the market is highly liquid, most trades can be executed at a single market price. This avoids the problem of slippage found in futures and other exchange-traded instruments where limited quantities can be traded at one time at a given price.