Today we’re going to look at the importance of having and following a spread betting system in order to ensure that we catch the big winning trades. We’re going to look at a real world example to illustrate the importance on this and how not following a system negatively affected one of the world’s top traders. In our last post on Stanley Druckenmiller, we commented that Druckenmiller had decided to close his hedge fund due his inability to make outsized returns over the past 3 years which he put down to very unfavourable market conditions.

One of the factors that have negatively impacted his performance this year is that, by his own admission, he missed the move in treasuries. Since treasuries have been the biggest and best trending markets this year that has been a fatal mistake. This does highlight a very important lesson for traders and that is that you must have a trading system, or in our case a spread betting system with specific trading rules and the discipline to follow it consistently.

A good spread betting system should include each of the following:

• Which markets to trade
• When to enter a trade
• When to exit a trade
• How much to stake on each trade
• How to know when to stay out of a market

Once you have a spread betting system that incorporates the above rules, all you have to do is follow it consistently. My guess is that either Druckenmiller was relying on discretionary reasons for entering trades rather than specific rules, or his system indicated an entry but he chose to skip the trades because he did not like them for some reason.

This is in fact where many traders fall down and the mistake can be fatal, as seen by the negative impact that skipping these trades has had not just on Druckenmiller’s performance, but on him emotionally as well and these factors may have led to him calling it a day.

In reality, nobody can be sure when entering a trade whether it will be successful or not and this is why once you have a spread betting system it is important that it is followed consistently. One can never tell in advance when the big moves are going to come and if you skip a trade for any reason and it goes on to be a big trend and a big winner you are in trouble.

One of the underlying principles of successful trading is that it is always better to risk taking a small loss than it is to risk missing a big winning trade. If the spread betting system used is good then only a small percentage of trading capital should be used for each trade, for example 2%.

If one is only risking 2% equity per trade then taking a loss of that amount is not too painful. Conversely, if a trader misses a trade that goes on to be for example a 10 to 1 winner, as may be the case in the current treasury trades then that equates to 10 x 2% of missed opportunity. That is far worse than risking the initial 2% loss. It is compounded if there are a handful of correlated markets such as in the case of treasuries, the 5 year note, 10 year note and 30 year T bond. Missing out on one trade is bad but missing out on all three is fatal. That is why we say it is always better to risk a small loss than it is to risk missing a big winning trade.

Because the markets only trend around 40% of the time all trend following systems will have more losing trades than winning trades. Therefore to make money you must have the big winning trades and ensure that you catch them when they come. If you don’t, you have no way to pay for the losing trades. This is why you must have specific rules to enter trades and rules to ensure that you don’t miss any trades.

Our spread betting systems, whether it is our forex system or our primary financial spread betting system for multiple market sectors both include rules to ensure that big trends are not missed and that trades are allowed to run to extract the maximum profit potential of each move. So, the question to ask yourself is “am I using a good system and do I have the discipline to follow it consistently?”. If you can answer yes to both then you are on the road to trading success.

Until next time, good trading

Phil Seaton

PS. You can find out more about our financial spread betting systems by clicking here.

Last week legendary hedge fund manager Stanley Druckenmiller announced his retirement from the investment world and stated that he was going to close down his Duquesne hedge fund. Druckenmiller was part of the team (along with George Soros) that broke the Bank of England in 1992 when they bet that the British Pound would fall against the Deutschmark and racked up profits on the day of around $1 billion. Druckenmiller cites his reason for retirement as his inability to make out-sized returns over the past 3 years due to very unfavourable market conditions.

Now, I don’t know what his issue was in 2008 as our spread betting system had a record-breaking year and there were a lot of very good trending markets across many different market sectors and this enabled our trading system to have its best year on record. 2009 and 2010 I can understand though as market conditions have been tough for everyone due to excessive volatility and global uncertainty.

The question is, what does this say about the future of hedge funds and the future of trend following? Whilst many believe that this is a bad sign if someone of the knowledge and experience of Druckenmiller has struggled to make money I actually take the opposite view. My belief is that Druckenmiller quitting is actually a great sign for future performance of hedge funds and especially trend following systems and funds and my reasoning is as follows:

All trading systems regardless of what they are based on will go through periods of good performance and periods of lesser performance. This is down to the nature of the markets and the fact that no strategy can be effective in all market conditions. Trend following systems will suffer during periods of excessive volatility and non-trending markets because they rely on good trends to make profits.

What we have seen in our own research and this is also quite well known amongst experienced traders and fund managers is that investors, especially amateur investors generally tend to bail out at the worst point, usually near the bottom of the equity curve. This is usually due to a period of poor performance exceeding their threshold for what they can handle.

At a higher level, the fund manager, also feeling under pressure from his investors and due to the need of better performance also seeks to change his strategy after a prolonged period of under-performance. Once the pain reaches a certain level amongst investors and fund managers, Druckenmiller quitting is evidence that we are at or very near that point we will then likely see mass withdrawals from hedge funds.  This will mean that moving forward not everyone is chasing the same moves and many will then use different or even opposing trading strategies. This will very likely free the markets up again and return them to a strong trending phase.

When someone of the calibre of Stanley Druckenmiller calls time on his trading due to how tough he is finding market conditions, that to me telegraphs the fact that we may be near the bottom of the equity curve and that it is in fact a great time not to quit, but to begin.

The markets essentially do one of two things, they either move directionally, i.e. trend or they move sideways, i.e. consolidate. In our trading research we have seen without doubt that following a prolonged period of one, a good period of the other follows. This is in fact quite logical and can be seen in many different markets. In 2008 for example, there were many out-sized trends in many market sectors and what has followed since has been a brutal period of consolidation.

It has always been my belief, based on my own research, that following a brutal consolidation phase, the likes of which have not previously been seen to the extent that are currently seeing, that an excellent period of trending markets will follow. These large trends could be either up or down. Trend following systems don’t care whether they are buying or selling, they can make money in up or down markets.

Now, whilst it would be foolish to say that Druckenmiller’s inadvertent timing is perfect as a contra-indicator, I wonder if around a year or so down the line we can look back and say that Druckenmiller actually came out near the bottom of the performance curve. My bet is that he won’t be far off and the next few months will tell the tale. I also would not mind betting that he makes a return to the markets himself at some stage in the future.

Until next time, good trading

Phil Seaton

PS. You can find out more about our trend following financial spread betting systems and spread betting strategies by clicking here. Our system comes with a full 30 day money back guarantee.

Today we are going to discuss spread betting strategies that can be used ahead of a major news item. Later today the second quarter US GDP numbers come out and we get asked frequently about which spread betting strategies we use ahead of such major news announcements.

The answer is actually quite simple. Since we are technical traders and follow mechanical trading rules we are either already in a trade if we want to be in it, or know where we will get in should our entry criteria be hit. We don’t base our trading decisions on trying to predict the news items, or how the markets will react to the news. We simply follow the trend.

Since our spread betting system is a weekly system, we don’t enter trades immediately before, during or after a news item as we are already in the trades that we want to be in. We don’t therefore enter again until the following Monday, using the closing price on Friday as our entry should the price action in the immediately preceding week trigger a buy or sell signal for us. We therefore use spread betting strategies based on a weekly timeframe and don’t concern ourselves with intraday news.

Trading systems are either predictive or reactive. We don’t get involved in trying to predict, but rather react to price action. We know already where we want to get in and where we want to get out based on the price and chart structure. The rest is irrelevant. Should the market exceed the levels that we have predetermined will be optimum for entry, either for long or short trades, then we will enter. If the market does not exceed those levels then we stay out.

Let’s just look at what is expected today as far as the news is concerned out of interest, although we won’t be basing any of our spread betting strategies on it. Economists are expecting that US GDP growth for the second quarter will come in at 2.5%. I expect that it may disappoint and come in lower than that, possibly closer to 2%. If that does happen then we may see a reaction to the news that moves stocks and currencies considerably.

We have already covered this week that the long term trend is down for stocks and have identified a couple of key resistance levels, which are 1118 and 1129 on the September S&P 500. As long as the market stays below those 2 levels then the short and long term trends will remain down and the odds favour lower prices.

Yesterday we got a close below the important 1100 level at 1097 on the September contract and also below the 200 day moving average, which many traders look at. We also had an evening star pattern form on the S&P 500 earlier in the week which is bearish for the short term so various things point to lower prices to come.

What this really boils down to is that you should have a trading plan in place ahead of any news items or price reactions and know exactly what you are going to do and why. Once you have your plan in place then you stick to spread betting strategies within that plan and trade accordingly.

There are many traders and economists that try to predict news items and how the markets will react to the news item depending on what the numbers are. It’s far better in my opinion to just focus on the most important indicator of all, which is the price itself. Then all you have to do is follow the price and the trend.

Until next time, good trading

Phil Seaton

PS. You can find out more about our financial spread betting systems and spread betting strategies by clicking here.

Here is the sixth part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the sixth of the 7 financial spread betting mistakes that financial traders make:

Mistake #6 Day trading – what all day traders should know

A large percentage of people who trade online or use financial spread betting are short term or day traders. With few exceptions these traders lose money. The reasons for this are simple enough but go against the grain of what most people believe or want to believe. This is therefore a controversial post, but it reflects my experience of what works and what does not work in online trading and financial spread betting.

Day Trading has been made popular by brokers and trading firms as each time a trade is placed these firms earn a commission. Earning commissions for these firms is the name of the game. In financial spread betting you are charged a spread (commission) each time that you open or close a trade. It is therefore obvious that these firms want to encourage you to trade frequently, as this is how they make their money.

All of these commissions or spreads reduce the profitability of a trader or trading system. Systems or traders which trade frequently generate very high commissions, making it that much harder to make a profit.

What is needed is a system that trades frequently enough to make good profits without generating too many commissions by constantly going in and out of the markets. The irony is that the shorter the time frame you use as your trading indicators i.e. whatever indicator you use to give you your buy/sell entry signals, the weaker the signal is. So, day trading systems use the weakest trading signals and at the same time generate the highest transaction costs.

Day Trading therefore is a low performing style of trading as the signals are weak, but a high transaction cost generating style, the net result of which makes money for the brokers and spread trading firms but leaves the traders with empty pockets and diminished bank accounts.

The alternative is a trading style that uses stronger signals (medium to long term) and therefore trades less frequently, generating lower transaction costs. Now you have a system that generates greater profits and has lower costs which equates to a profitable trading system. This style of system is good for the trader but not so good for the broker.

It is little wonder then that everywhere you look, short term or day trading systems are promoted, but you rarely hear about medium to longer term systems. Another reason for this is the software vendors and people who want to sell you real time data. To trade profitably you only need end of day data. There are numerous sources on the internet where free end of day charts and prices are available.

You do not need real time data and it is in fact a very bad idea as it leads you to trade too frequently. Ed Seykota, the legendary trend follower once said that having a real time quote machine is akin to having a slot machine on your desk in that you end up feeding it all day long.

The problem with real time data and day trading apart from what has been discussed already is that you are too close to the market. You are in fact so close that you can’t see what’s really happening. Imagine holding a chart in front of you and pulling right up to the end of your nose. You can’t really see what’s going on, but as soon as you move the chart away to about arms length everything becomes clear. You can now see the trend and direction of the market.

Consider the following and see which conveys more about the state or direction of the market

1.      1 minute bar chart

2.      5 minute bar chart

3.      30 minute bar chart

4.      Hourly bar chart

5.      Daily bar chart

6.      10 day bar chart

7.      50 day bar chart

It should be obvious that the information contained in a 1 minute chart is less relevant to the state of the market than a 50 day bar chart. If a market hits a 30 minute high this is clearly less significant than a 50 day high. If a market hits a 50 day high then clearly something is going on in that market which is causing it to rise.

It can be seen from the above that the shorter the time frame (within reason) the weaker the information and the longer the time frame (within reason) the stronger the information. What is therefore needed is an intermediate indicator because as we have seen a short term signal is virtually worthless and no better than random, whilst an extremely long term indicator would severely limit your trading options.

There are numerous indicators that can be used, whether we are using highs and lows over a certain number of days, or moving averages. The same holds true with moving averages as with highs and lows over a period of days. A 5 day moving average indicator is clearly a weaker indicator than a 200 day moving average.

We must also consider that if you are day trading, the maximum amount of profit that you can make on a trade is how far the market can move in a day (most day traders are reluctant to leave trades open overnight and close them before the end of the trading day). Whereas if you are using a medium to long term system you could be in a single trade for weeks or even months, meaning that the potential profits from a trade are many times what can be made in a single trading day.

The LS Trader system, which is a medium term trend following system is often regularly in trades for months. In fact, in 2008 the average duration of a winning trade was just over 80 days. Consider for a moment how much profit each trade is likely to generate if it is open for an average of 80 days whilst at the same time how little spread is paid. The spread is paid upon opening and closing of the trade and a reduced spread paid for rolling the contract over, which in many instances is quarterly.

Compare this to day trading where spread is paid each time a trade is opened and closed throughout the day. It should be self evident that a day trading system has to perform well just to cover the transaction costs. In my experience day trading systems rarely generate enough profit to pay for the transaction costs, let alone leave enough after costs to show a profit at the end of the year.

In addition to the facts that day trading systems are low profit and high transaction cost generating must be added the fact that if you are day trading you have to sit in front of the screen for 8 hours a day. This is extremely time consuming and also highly stressful. This is not the way to trade, either from a profitability angle or a lifestyle angle.

The LS Trader system is a medium to long term trading system that only trades on a weekly basis. Trades are opened on Mondays with stop losses set. Traders can then go away and do whatever they want and not need to do anything on their account until the following week. This leads to low commission generation and high profits.

Next we will discuss Deadly Financial Spread Betting Mistake # 7 “Listening to the news and fundamental analysis”

Until next time, good luck in your trading

Phil Seaton

PS. You can sign up for the LS Trader financial spread betting system here. The system comes with a full 30 day money back guarantee.

Here is the third part of our 7 part series titled “The 7 Deadly Financial Spread Betting Mistakes”. Today we will discuss the third of the 7 financial spread betting mistakes that financial traders make:

Mistake # 3 Trading against the trend

You should never trade against the trend but should always follow the trend. There are several reasons for this. The first reason is that the price is the only instrument that takes into account all the knowledge everybody has about that particular commodity. If the price is going up then there is a reason for that. We do not need to know the reason, we only have to get on board and stay with the trend until it ends.

Conversely, if the price is going down then there is a reason for that as well. Why would we want to get on the wrong side of the prevailing trend? Traders want to be right and they want to say “I got in right at the bottom, look how smart I am”, not realising that those bottom few points that traders try to pick are the most expensive few points in history.

If you think about it, how likely is it that you are able to pick a point near a reversal in price and that the price is just going to stop and then start moving the other way? It’s not really very likely. Far more likely is that the price will continue to move in the same direction that it is already going.

The example I like to use is that counter trend trading is like jumping in front of a fast moving train and hoping that it stops right in front of you, turns around and then starts going in the opposite direction. Why not just jump on the train in the direction it’s already going and stay on board for the duration of the journey (the trend) and then get off the train (exit the trade) when the train finally reaches its destination and starts to turn back?

This is the optimum approach and affords easy risk control, because it will soon become obvious if the trend is not going to continue and you can then exit the trade with a small loss, leaving your trading capital intact and you ready to take the next good trading opportunity that comes along.

If you are counter trend trading and are looking for the top or bottom of the market and you decide for example that Gold has dropped to $850 and you are sure this is the bottom and it has to go higher (after all only a week ago it was at $900!) you buy Gold at $850 only for it to fall to $830. If it was a good buy at $850 it must be an even better buy at $850, so you decide to open a new trade at $830 (after all this is giving you an average price of $840 which must be good!). This process is known as averaging down. We’ll talk about this in part 4 of The 7 Deadly Financial Spread Betting Mistakes.

Meanwhile, Gold falls further still. Now you have a big loss on your hands and Gold stands at $820. Using the same logic as before, you borrow some money and buy more Gold at $820. Again you are wrong and Gold falls further to $790 and therefore wipes out your account. This kind of thinking is commonplace and is the cause of most people losing all their money because people buy into the myth that things return to normal. Sometimes they do but many times they do not.

The fact remains that if you were trend following, i.e. trading in the direction of the trend then you would not have been in this position in the first place as you would have exited your trade shortly after it moved against you, taking a small loss. You would also not have averaged down (added extra trades to your original position), as this would be taking trades against the trend. Therefore you would have just taken 1 small loss, instead of several large losses, and lived to fight another day.

A very popular trading theory is buying on dips and selling rallies. This is counter trend and is a mistake. Testing this theory out over a long period of data proves that this is a losing strategy. The reason for this is that if the market falls and you are looking to buy on a dip, how do you know that this is not the start of a trend reversal? You could buy on the dip only for the market to continue to go against you. The same is true for selling rallies.

The rule here is that you must trade with the trend and therefore you must buy strength and sell weakness. Therefore you should never buy on dips or sell rallies but should wait for the momentum of the market to go your way before entering. Counter trend trading is going against the market and is best avoided.

Longevity in trading is the key as long as you have a system that has a positive expectancy, or an edge. The LS Trader system is such a trading system as it has a positive expectancy and therefore an edge. The longer you stay in the game, the more chance that edge has of coming to the fore. This leads to long term profits, which is what all traders are after.

Part 4 of the 7 deadly financial spread betting mistakes will be published here in the next few days.

Good trading

Phil Seaton

PS. If you are not already subscribed to The LS Trader system, please click here for a 30 day trial subscription. The LS trader system has been built around all the points covered in this article and avoids all the mistakes that most online traders make. You can try the system out for a full 30 days and if you are not delighted with it, simply cancel and receive a full refund of your subscription.

Phil Seaton’s 7 Rules of Successful Financial Spread Betting

Here is part 5 of my rules of successful financial spread betting

5.    Always follow the trading system

If you want to be successful when trading the markets you must first have a trading system that works and you must have the discipline to always follow that system, come what may.

A good and robust trading system should have been vigorously back tested over a fairly large amount of market data. I suggest a minimum of 10 years but more is better. In my own system development I use a 25 year database spread across numerous markets. This is the database used to create the LS Trader system.

Whilst the back testing of a system does not and cannot predict what will happen in the future, if testing is done over a sufficient sample of data then it can give you a very good indication of what to expect.

After all, what is the opposite of back testing? No testing is the opposite, which is just like trying to trade the markets blind and you are trading based purely of hunches and guess work. This “seat of the pants” trading is highly unlikely to be successful in the long run. It is also much more difficult to keep trading when you go through a losing spell if you do not have a specific system or rules to follow and just rely on your gut.

A good trading system should have specific rules for each and every situation or sequence of events that may come up in the markets so that you should always know what to do in any given situation. In fact, a good trading system should mean that you don’t need to sit in front of the screen all day long as it should not be short term and should use stops. You should have stop losses set so that whatever happens you know exactly where you are getting out of any positions that you may be in.

Back testing often gets bad press as people often assume that what is being done is curve fitting i.e. looking at a chart and saying if you bought here and sold here then you would have made x amount. They then make rules based on the specific data to come up with a system that performed very well in the past on the market tested.

This obviously has little if any value. That is not real back testing. In true back testing you would come up with a set of rules and then run that over a period of data and see what the results are. You then change around the parameters of the system until you come up with what appears to be the best parameters.

To ensure that the financial spread betting system is not curve fitted you must change the markets that you tested it over by either adding or taking away some markets, test over more or fewer markets and then finally change the period of the test.

You can test against a shorter or a longer period by changing the start or end date of the test or by testing the data in the middle of the data range. If you run all these tests and you are still getting fairly similar results without a dramatic shift in the performance of the system then you have a good robust trading system that is not curve fitted and that is much more likely to give similar performance in the future as it has in the past.

By using proper back testing you will have an idea of what to expect from the trading system that you are trading, both in terms of profit potential and in terms of equity drawdown. A drawdown in equity is from the high point of your equity to the low point and is measured both in percentage of equity and in the time it takes to recover from the low point of equity to make new equity highs.

All systems will have drawdowns and losing periods. It is a fact of a trader’s life and has to be accepted. If you know that a system has a positive expectancy and what the likely drawdowns will be then you can prepare in advance. If you don’t like the drawdowns of the system that you have or find it uncomfortable to keep trading through them then you can reduce your trading size until things fall within your comfort level.

If the drawdowns are likely to be beyond your comfort level then you will find it difficult to keep following the system through losing periods and are best to reduce your risk per trade in advance.

The entries and exits in a trading system have been calculated for a reason and you must always follow them. For example, if your trading system shows that you trade the British Pound and a new signal comes along saying that you should go long the pound, but you don’t like the trade because you think it’s too high already (or have heard some news report saying the pound won’t go any higher or some so called expert has said that the market is over- bought!) you should still take the trade. You must be willing to follow a trend.

It is vitally important to take all the signals which are generated by the trading system, irrespective of your opinions on that particular market or the price that the market is currently at. Consistency is the name of the game. It is always a good probability that the trade you do not take will be one of the big trends of the year and failing to take the trade can have a huge impact on the profitability of the system.

REMEMBER IT IS ALWAYS BETTER TO TAKE A SMALL LOSS THAN IT IS TO MISS A BIG PROFIT OPPORTUNITY.

For those readers who don’t have the time, knowledge or interest in developing their own robust trading system, I have already done all the work for you and have created a complete, robust trading system based on vigorous back testing over 25 years of data. I have also been trading this system myself and it has performed exceptionally well. To learn more please about my trend following system please click here.

My sixth rule of successful financial financial spread betting will be published on this blog soon.

Good luck in your spread betting

Phil Seaton

PS. The LS Trader system incorporates all of my trading rules. You can sign up for the LS Trader system here. The system comes with a 30 day 100% money back guarantee and can be followed in as little as 15 minutes per week.

Phil Seaton’s 7 Rules of Successful Financial Spread Betting

Here is part 3 of my rules of successful financial spread betting

3. Cut losses

This is where most traders and trading systems fall down. You must cut your losses. You must never move your stop loss back when the price is approaching your stop loss to keep you in a trade in the hope that the price will turn around. Occasionally this may happen but over time you will lose more money. In some instances this style of trading will usually lead to you taking such a large loss that you cannot recover from it.

The key to consistent profit making in the markets is that your winning trades must be larger than your losers. If you keep your losses small and let your winners run this is easily achievable.

For example:

If you make 10 trades risking a £1000 per trade and the following happens

5 trades lose at £1000 per trade = -£5000
1 trade breaks even = £0
1 trade makes a £1000 profit = £1000
1 trade makes a £2000 profit = £2000
1 trade makes a £3000 profit = £3000
1 trade makes a £5000 profit = £5000

You have only been correct on 4 trades out of ten and you lost £5000 on your 5 losing trades, but you won £11000 on your 4 winning trades. You are £6000 in profit for ten trades. This shows you the value of cutting losses short and letting winners run. Most people want to be right all the time and look for a system that gives them 8 or 9 winners out of 10 (I have yet to see such a system!). I am not interested in being right, I am only interested in making money and you should be too.

If I were to offer you the chance to make £11000 out of every ten trades that you made and lose only £5000, meaning that you would be £6000 in profit every ten trades made I hope that you would jump at the chance to play this game all day long. This example is only hypothetical, but it gives you an idea of what this trading system is about. It is possible to be wrong 7 times out of 10 and still make money if you will follow the rules.

The above is just an example but over time, trading does work out usually somewhere along these lines. As an added advantage of trading this way, every so often you get a huge trade that pays out many more times your initial risk. Usually each year we get a handful of outsized winners which we class as home runs.

In the example above I have only included 1 trade winning at 5 times the original trade. In 2008 we had several trades that paid off at 9 or 10 times the original stake and one that we recently exited, the short GBP/JPY trade that paid out around 22 times the original stake.

One concept that must always be kept in mind is the risk of ruin. Many traders overtrade both in frequency of trades and size of trades. They stake far too much on each trade and therefore end up taking big losses. This approach often leads to traders wiping out and losing all their account equity.

The right approach is to risk only a small percentage of your trading capital on each trade and set an initial stop loss and stick to it, never moving your stop loss back to stay in the trade. This way you will ensure that you stay in the game and make sure that you have the chance to catch some big winners and make profits.

If you have a good trading system which has a positive expectancy, then the key point is to stay in the game long enough for this positive edge to work in your favour. If you lose all your chips you can’t play. Therefore you must be conservative, both with your risk per trade and your account equity on the whole.

REMEMBER ALWAYS: CUT YOUR LOSSES SHORT AND LET YOUR WINNERS RUN

My fourth rule of successful financial spread betting will be published on this blog soon.

Good luck in your financial spread betting

Phil Seaton

PS. The LS Trader system incorporates all of my trading rules. You can sign up for the LS Trader system here. The system comes with a 30 day 100% money back guarantee and can be followed in around 15 minutes per week.

The Bank of England will probably cut interest rates to 1% at midday today. I expect that the nine-members of the Monetary Policy Committee will cut the bank rate by a further 0.5% to 1%. This will be the lowest interest rate since the Bank Of England was founded in 1694.

The Bank of England rate is currently 1.5% after the BOE reduced rates by 3.5 percentage points since October. In the US, the Federal Reserve has already reduced its rate to a range between zero and 0.25 percent. I expect that he European Central Bank will keep its rates on hold at 2 percent today.

The plight of the pound still looks bleak even though we have seen some relief rallies over the past week or so. Currently the long term trend is down for the Pound and this looks as though it will remain the case for some time to come. Certainly the market is looking for rate cuts and these to an extent will already be priced in to the market.

The March contract hit a low of $1.3492 on the 23^rd January and this level may well provide support should the market decline to this level. On a longer term chart this level also produced support back in 2002. If support at $1.35 fails then a decline to $1.25 may be seen.

Further out the Bank Of England may continue to cut rates to near zero in line with the US. This is only likely to send the pound lower as interest rate differentials is a key factor to currency trading.

The pound has fallen 16% against the Euro and 27% against the US Dollar in the past year and is also down 32% against the Yen. The short Pound/Yen trade was our second best trade of the year in 2008 as we caught most of the decline.

Currently we have no trades on the Pound against either the Yen or the Dollar as we wait for the next signal. As the long term trend is down, I don’t see us having any buy signals on the Pound any time soon.

Good luck in your trading

Phil Seaton

www.PhilSeaton.co.uk

What the January S&P Barometer says about the stock markets this year.

The January Barometer states that as the S&P 500 goes in January, so does the rest of the year. This indicator has had only 5 significant errors in the past 58 years and has a 91.4% accuracy ratio over the same period!

The 5 times that this indicator was wrong coincided with some fairly major events.

1. In 2003, the anticipation of military action in Iraq

2. 2001 saw 2 interest rate cuts in January and of course September 11^th.

3. In 1982 we had the start of a major bull market

4. 1968 and 1966 were both affected by Vietnam

In January last year the S&P 500 was well down and we had a subsequent bear market, which we are still in. The current contract in the S&P 500 is the March contract and this opened the year at 902. It ended the month on Friday at 822, almost 9% lower for the month. This indicator suggests that the markets will also end 2009 down for the year as the bear market continues.

At the time of writing this, S&P 500 futures are further down at around 809. As I have written before, round numbers have a tendency to produce support, even it’s just from a psychological perspective, and therefore we may see some support at 800. This level is also quite visible on the chart as buyers have come in at around the 801 level several times recently.

If this level can be cleared then we may well see a move lower to around 750. Support should be seen at that level but we’ll have to review things if and when we get there.

As I have written many times before, everyone still seems focused on where they think the bottom of the market is and when they should buy. It’s quite amazing really that you rarely hear people say “the market is going down and I’m going to sell it short”. People seem to want to fight the tide instead of just go with it. This is of course why trend following works. You simply identify a trend in the markets and jump on board until the trend reverses.

As subscribers to my LS Trader financial spread betting system will know, we were short the stock markets for a big part of 2008 having first shorted the markets in January. We are again short some of the stock markets right now and will be for as long as the markets continue to trend lower. If you want to learn how to make money by shorting the stock markets you can subscribe to the LS Trader system here

There is an upward bias always in the stock markets as people buy in to the myth of buy and hold. This strategy is all well and good if you are in a multiyear bull market, but if you buy and hold through a multiyear bear market you will be in trouble. I believe this bear market has quite a way to run and I don’t see us having any buy signals in the stock markets in 2009.

All things considered it is unlikely that we will see much upside movement in stocks for the foreseeable future. There will most certainly be some bear market rallies along the way but I don’t see us having any buy indicators for stocks any time soon.

Good luck in your trading

Phil Seaton

PS. Click here to sign up for the LS Trader system. The system comes with a no quibble 60 day unconditional money back guarantee.

It’s now around 8.20am on a Monday morning and my financial spread betting for the week is already done! Now all I do is wait for the weekend and can go about my business. I don’t have to worry at all about what the markets do as I know that most of what goes on in the markets on a day to day basis is just noise. My stop losses are in place to protect my trading capital from any losses and also to take me out of my profitable trades if the market reverses.

How is this possible? Well, the financial spread betting system that I created, the LS Trader system, is a medium to long term trend following system which only takes around 15 minutes each week to follow. This means that all we do is open trades up on a Monday morning, add some stop losses and then move the stop losses on trades that we had open from previous weeks.

Sometimes we will get stopped out after a day or two if the market moves against us and other times we could be in trades for several months if some nice trends develop. Last year there were several markets that trended very well and we were in numerous trades for more than 100 trading days (assuming 5 trading days per week, that’s more than 5 months for a single trade!)

To use the LS Trader system, all you do is log in to your account at the LS Trader website (once you have signed up) and go to the trade bet calculator page. On this page there is a full list of all the markets we trade and details of all the trades we are currently in as well as all the trades we are opening this week.

You then go to your spread betting platform, such as IG Index and go to the market that you want to open, check the current market price, enter this figure in to the bet size calculator that we provide. You then enter how much money you have to trade with and the calculator tells you exactly how much to bet per point. It’s so simple. The software also shows you exactly where to put your stop loss.

All in all this is a very simple process which takes on average around 15 minutes per week. This week is a busy week as we have 9 new trades to open, so it actually took me a few minutes longer than normal.

To follow this financial spread betting system you don’t need to know anything about trading or the financial markets and you certainly don’t need to be reading newspapers or watching TV trying to figure out what’s going on in the markets. There are no charts that you have to read or data feeds that you have to subscribe to.

We’ve actually made trading the markets very simple even for the complete novice. And you can do it all from the comfort of your own home on your pc in just a few minutes per week. You don’t even need to phone a broker as you can execute all your trades instantly online. Best of all, as what we are doing is trading the markets via financial spread betting all our profits are tax free! Currently spread betting is tax free in the UK.

The bottom line is trend following works. It’s been around for several decades and has always and will always work. It takes all the guess work out of trading as it has simple specific rules to follow which lead to capturing big profitable moves in the markets.

There are numerous top traders who use trend following as their trading strategy to consistently beat the markets. Now, we’re making a very powerful version of this trend following strategy available to you and we’ve done all the work for you. All you have to do is simply copy our trades. How easy is that?

If this sounds like something of interest to you, and after all why would it not be as who does not want to “work” for around 15 minutes a week to produce a tax free income, then simply click here to visit the LS Trader website and sign up.

Good luck in your trading

Phil Seaton

PS. Click here to sign up for the LS Trader system. The system comes with a no quibble 30 day unconditional money back guarantee.