FYI | Feb 18 2011
FNArena has added another video to its Investors Education section on the website.
ATW's Jerry Simmons explains the principle of a "bracket trade". He believes AUD/USD, EUR/USD and crude oil future are at present all examples of a "bracket trade". Total duration for this video is 45.30 mins.
Summary
As often happens in closely correlated markets, the three markets EURUSD, AUDUSD and Crude Oil are all setting up for “bracket trades”. “Bracket trades” develop when the particular instrument to be traded (currency, commodity, index, etc.) is finely balanced between an upside breakout and a downside breakout and both alternatives have to be given about equal weighting. We then need to establish two points, one above current price, one below it, at which the price will have broken out of consolidation and no substantial obstacles are left for a continuation move of some magnitude.
Comments
EURUSD
Two major DPTLs (Dual Purpose Trend Lines) are visible: one at 1.3400, the other at 1.3250. The 1.3400 DPTL is really best defined as a zone: 1.3400 – 1.3450; so is the 1.3250 DPTL: 1.3200 – 1.3250.
The ATW teaches to never blindly buy on the long side when a DPTL above the market is penetrated, or to blindly sell when a DPTL below the market is penetrated, but to demand a confirmation level. In fact, as good practice; the ATW defines 3 confirmation levels: (1) conservative confirmation; (2) aggressive confirmation (3) ultra aggressive confirmation with correspondingly different risk levels attached to those on entry.
In the case of the current EURUSD, a break-out above 1.3570 would represent a conservative confirmation level, with the market expected to then continue the upside move for a considerable distance; the first target would be 1.3750; the second target would be 1.3860.
On the other hand, a break-out below 1.3400 would clear the way for a continuation move to the downside. The break-out to the downside is more likely than a break-out to the upside.
Jerry Simmons uses the example of the EURUSD to emphasise other key concepts of the ATW methodology, for instance the Profit to Loss Ratio. Two key factors determine the quality of a trading method: (1) the win ratio – i.e. the number of winning trades as a % of all trades; (2) the Profit to Loss ratio. Of the two, the second is the more important one.
AUDUSD
At 35min 13sec into the video, Jerry explains the same bracket trade setup for the Aussie-US pair: if the AUDUSD breaks out below 0.9960, a continuation to the downside is highly likely (target 1: 0.9850; target 2: 0.9800 and lower). Conversely, if the AUDUSD breaks out above 1.0090, a continuation move of sizeable proportion to the upside is to be expected (target: 1.0250 and higher). In case of a downside breakout there is the added factor of a triple top being in place and towering rather ominously above the current price.
Gold
Here the bracket trade is:
1. In case of a break-out above $1374: be long
2. In case of a break-out below $1344: be short.
In both cases, expect continuation moves of sizeable proportions.
Crude Oil
Jerry favours this market as very appealing on this day. Once again, a bracket trade offers itself:
1. In case of a break-out above $88.50 (conservative confirmation): expect a sustained move to the upside
2. In case of a break-out below $84.50 (conservative confirmation): expect a sustained move to the downside, probably down to $82 and possibly lower.
To view the ATW Strategic Prep Video (originally from November 29, 2010) titled "EURUSD_AUDUSD_GC" click HERE or visit the FNArena Investors Education section of the website.
Here's the direct link: https://www.fnarena.com/index2.cfm?type=dsp_front_videos
All views expressed are Jerry Simmons's, not FNArena's (see our disclaimer).
Jerry Simmons has over 25 years of full-time trading experience. He is the senior partner and head mentor for the “Masters” Programme within the education system at New York based Advanced Trading Workshop (ATW). ATW recently set up shop in Australia through the establishment of ATW Australia (since mid-2010).
FNArena is pleased to have Jerry Simmons as a highly valued contributor to its service which aims at both educating investors and assisting them with their own market analyses.
The above mentioned videos can be accessed via the FNArena Investor Education section at https://www.fnarena.com/index2.cfm?type=dsp_minc_education)
About ATW Australia
Founded in June 2010, ATW Australia is a “one-stop-shop for all a trader needs to succeed”: quality education for new traders, superb advanced trading education, fast unfiltered data, a world-leading trading platform, customer oriented competitive brokerage, quality ‘Made in the USA’ specialized trading computers, trading magazines, and the all-important psychological mentoring and coaching for traders. The trading educational products are provided by the Advanced Trading Workshop, Inc. in New York, all other services are provided by a network of partners that were chosen based on their superior products and services in their specific field of expertise. FNArena is one such partner.
To learn more visit www.advancedtradingworkshop.com.au.
