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Best Charts 2016 - Peter Brandt

Chart Summit – Best Dressed Charts of 2016

Each year at about this time I publish a “Best Charts List” showcasing the outstanding examples of classical charting principles from the just-completed year. The Best Dressed List (BDL) illustrates the types of trading situations Factor LLC seeks in its proprietary account. These types of trading situations are the main focus of Factor LLC’s trading. Read More
Gold Yen Ratio

Correlation of Japanese Yen with Gold

Gold Yen Correlation

Conventional wisdom has been abuzz lately about the Gold Yen Correlation. The two charts below are courtesy of my friend James Cutting of Nautilus Capital. Indeed, on the basis of a 63-day Gold Yen Correlation (I have no idea how James determines these time periods) there is presently a .85 correlation between the two markets. The second chart in this series shows that since 2013 there has been a fairly consistent correlation of at least .50 between the markets.   Yen Gold Correlation 2- Factor Trading - Peter Brandt Read More
Trading Expectations - The enemy of traders | Peter Brandt

Trading Expectations – The enemy of traders

Trading Expectations – The enemy of traders

My observation over the years is that a significant discrepancy between trading expectations and reality exists among newbies and aspiring traders. Unfortunately this gap between “wishful thinking” and “what-is thinking” can be the downfall of an aspiring trader. What are some of the false trading expectations held by many newbies and aspiring traders?

  • Win rates of 60%, 70% and even 80% can be achieved on a continuous basis – this is especially true if a trader expects to achieve a positive win value/loss value ratio
  • The win rate over a large number of trades will apply fairly evenly to any subset of smaller number of trades
  • A risk of 5% to 10% of capital per trade is reasonable and will produce the maximum profit
  • A trader can know with a high degree of confidence what a given market will do
  • Annual RORs of 50%, even 100%, are achievable if only certain trading systems or gurus are followed
  • A trading account can reasonably be funded from savings, a loan, an inheritance
  • Day trading is the way to go for most beginning traders
  • The secret to trading success comes from trade identification or trade signaling

So, what do I view to be the realities of trading?

  • Successful market speculation is one of the most challenging endeavors one can undertake
  • It generally requires three years for a beginning trader to gain a sense for how she or he will trade and five years to become proficient with the adopted approach
  • A win rate of 50% is fabulous for a position trader
  • Even with a win rate of >50%, drawdowns in excess of 30% of capital will occur annually if the bet size exceeds 2% of
  • Trading outcomes over a series of trades are subject to random probability – and random probability can be a real bitch
  • A trader really has no clue what a given market will do
  • While day trading can be a profitable approach, a beginning trader needs to understand the reasons why the odds are stacked against day trading. Hint: the reason deals with the need for a trader to have an “edge.” The reality is that HFT and quant operations have the edge on a daily basis – so a day trader must compete with firms that know spec orders in advance in order to be profitable. I am NOT saying that ALL spec day traders are doomed. I am simply stating that the odds of success in day trading are far less than for position
  • A trader’s worst drawdown is the one yet occur
  • If there is a “secret” to trading, it has VERY little to do with trade identification and It has more to do with overcoming the human pitfalls of fear, greed and false hope.

 

It would be nice to think that every trade … week … month … year will be profitable. But that is not reality – at least not for me. Statistically I can define my average year (although in reality no two years are ever alike). With 25 years of trading basically the same way I have the luxury of knowing my trading benchmarks and metrics inside and out. These trading benchmarks and metrics help me to form trading expectations. For example, I can reasonably expect four months of an “average” year will be quite good each containing two trades closed at a 350-basis point or more profit. I can also reasonably expect four months to be slightly profitable each containing at least one profit closed at a 200-basis point profit. Then I can expect four months of treading water when good trades are hard to come by and my challenge is holding onto capital.

January has become a water-treading month. Does this mean I traded poorly (or at least sub-par) during the month? Absolutely not! I am completely satisfied with the orders I entered in January – REMEMBER, TRADING CAN BE REDUCED TO THE PROCESS OF ORDER ENTRY. Does this mean I need to “tweak” some aspect of my trade identification, trade entry, sizing or trade management? Absolutely not! My job as a trader is to continue following my overall strategy and tactics through good times and not so good times. The results of the last trade, the last series of trade, the last week or the last month are not determinants of long-term trading success for me.

 

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Factor Membership

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Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

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View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

Factor Trading - An Introduction

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Copper COT

Can Copper Defy the Odds

Copper

The daily and weekly charts of Copper appear to be forming an 11-week rectangle or ascending triangle, depending on how the boundary lines are drawn. A move and close above 274.40 would complete this consolidation pattern and establish an upside profit target of 300.

 

copper-3-peter-brandt-png copper-2-peter-brandt-png

 

I am willing to buy the breakout in Copper, but with a huge caveat. The market is coming off a period of all-time record spec long and commercial short positions (by a massive margin compared to the previous records). Normally I would shy away from buying a market with this COT profile. Yet, as I have pointed out elsewhere in this Update, there have been rare occasions when a market is resolved in the direction of a record spec long COT profile. In fact, the most outstanding example of capitulation by commercial interests occurred in Copper in Oct 2003 – the period with the previous spec long and commercial short record holdings (see red vertical line on the monthly chart, next page). In that case the market went straight up for 2½ years with prices quadrupling. Usually commercial interests are right – but when they are wrong, they are dead wrong.

 

copper-4-peter-brandt

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Factor Membership

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Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

.

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

Factor Trading - An Introduction

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Silver - Peter Brandt - Factor

Silver Potential

Silver

An asset showing potential.  Silver is a market with a tendency to form H&S patterns with stunted or abbreviated right shoulders. This is currently the case on the daily chart. I would greatly prefer to see a decline below 16.40 followed by an advance and close above 17.50. Such a scenario would entice me to be long Silver. Read More

Jack Schwager – Peter Brandt Interview – Part 3 (Final)

Jack Schwager – Peter Brandt Interview – Part 3

 

Part Three, 45 minutes – Personal worst trading mistake, getting out of a trade, four pillars of the Factor Service, favorite and least favorite patterns, trading plan now vs. just starting out, worst mistakes traders make.  Final interview of the series recorded in December has been published.

 
 
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Factor Membership

 
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Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

 
 
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View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

Factor Trading - An Introduction

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Jack Schwager – Peter Brandt Interview – Part 2

Jack Schwager - Peter Brandt Interview - Part 2

  Part 2 of the three part interview series recorded in December has been published.  Part 3 will be released the week of Jan 16th. Read More
So you want to become a full-time trader - Factor Trading - Peter Brandt

So you want to become a full-time trader

So you want to become a full-time trader

A frequent question from aspiring traders goes something like this: “How do I know the right time to quit my job in order to become a full-time trader?”

In 1981 I started Factor Trading Co., Inc. with less than $80,000 in trading capital. I consider myself lucky that I did not wash out – that providence dealt me a better hand than I probably deserved. But markets are a lot different today than they were in 1981. I can only offer my own opinion as to what a full-time trader needs today to go out on their own.

If you have a good career doing something else, why rush into full-time trading? Earning a supplemental income as a trader is a nice gig.

If you desire to become a full-time trader, following are what I believe to be the minimum conditions.

1. Your trading account should represent profits you have accumulated from the markets, not savings you have taken from some other endeavor.

2. Your account size should be at least three to four times greater than the amount of annual profits you are expecting to make from trading.

3. You should have at least two years of savings in the bank (other than your trading capital) to cover your living expenses. [Note: This condition is waived if your spouse earns enough to cover living expenses or if your family is independently wealthy.] Depending on trading profits to cover living expenses is a very poor place to start.

4. You should have been profitable the last two consecutive years with Calmar and Gain-to-Pain ratios of at least 1.5 to 1.

5. You should have a complete understanding of the trading plan you will begin using.

6. You should assume a 50% chance that your first year will be a losing year.

 

Also below is our current list of recommended reading.

  • Richard Schabacker  – Technical Analysis and Stock Market Profits
  • Edwards and Magee  -Technical Analysis of Stock Trends  –  Only 6th version or earlier – only first half of the book
  • Jack Schwager  -Market Wizards series
  • Steven Drobny –  Inside the House of Money  – European version of Market Wizards
  • Jack Schwager  –  Market Sense and Nonsense: How the Markets Really Work (and How They Don’t)
  • Nate Silver  –  The Signal and the Noise: Why So Many Predictions Fail – but Some Don’t
  • Nickolas Darvas  –  How I Made $2,000,000 in the Stock Market
  • Peter L Brandt  –  Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading
  • Anything by Michael Lewis
  • Malcom Gladwell  –  Blink: The Power of Thinking Without Thinking
  • Mark Douglas  –  Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude
  • Edward Chancellor  –  Devil Takes the Hindmost: A History of Financial Speculation
  • Brett Steenbarger  –  The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist
  • Steve Nison  –  Japanese Candlestick Charting Techniques
  • George Soros  –  The Alchemy of Finance
  • Nassim Taleb  – Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

New to Forex and Futures Markets

Currency Trading for Dummies
Trading Futures for Dummies
Jack Schwager  – A Complete Guide to the Futures Market: Fundamental Analysis, Technical Analysis, Trading, Spreads and Options
 
 

Factor Membership

Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

Factor Trading - An Introduction

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Stock Market Index – Nasdaq

U.S Stock Market Index – NASDAQ

You can’t keep a good dog down. There are some wonderful traders I follow that have been calling for imminent collapse of the U.S. stock market index. They offer very sound, thoughtful, thorough and persuasive reasons why the U.S. stock market should not be at present levels. They have even doubled down in recent weeks on their bets. The problem is that the U.S. stock market could care less about the thinking these traders hold forth. They will likely be right … eventually. But price is always King.

Personally, I believe the U.S. stock market is in the final blow-off in the bull market that began in early 2009 – but blow-offs can be very rewarding for longs capable of catching the eventual turn in trend. The NASDAQ index is constructing a possible H&S failure pattern on the daily graph – requiring a decisive close above the right shoulder high at 4897. A H&S failure pattern would establish a profit target of 5123.

 

US Stock Market Index NASDAQ - Factor Trading Peter Brandt

 

I am interested in this possible buy signal if I can find a low risk way to play it. H&S failure patterns are not unknown to the NASDAQ Index. In fact, a massive H&S failure pattern was completed on the weekly graph in Jul (see below). If I do not find a spot to buy NASDAQ with less than a 20 or so point risk I will just watch the balloons float away.
US Stock Market Index NASDAQ - Factor Trading Peter Brandt

 

 

Factor Membership

 

Peter Brandt is a 40+ year veteran of trading.  Through his Factor Service, members receive:

checkTrading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
checkWeekend Update: 10-16 pages full of in-depth chart analysis and charting commentary
checkAlerts: Detailed information on specific charts as unique opportunities present themselves
checkMarket Commentaries: Communications on specific topics regarding market speculation and trading distributed periodically
checkWebinars: Monthly member-only webinars where Peter speaks about current conditions and fields member questions
checkKnowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of content
checkAutomatic notifications: Email and social media notifications are sent out when new content is published

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work.   Through the Factor Service I endeavor to alert novice and aspiring traders to the many pitfalls you will face – and to offer advice on overcoming those pitfalls. My goal is to shoot straight on what trading is all about.  For more information watch my 30 minute webinar where we cover the Factor service in depth.

I hope you will consider joining the Factor community.

 

Factor Trading - An Introduction

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Perfect Soybean Oil

Soybean Oil futures

  This blog post is relation to the H&S Soybean Oil pattern identified within the post from September 12th https://www.peterlbrandt.com/soybean-oil-next/ The weekly Soybean Oil continuation graph has completed one of the most perfect textbook H&S bottom patterns I have seen in 41 years following futures markets.   Perfect Soybean Oil - Factor Trading - Peter Brandt Read More