You are not your Trade

Traders can make psychological mistakes when trading that can end a trading career very fast. Here are a few examples:

• They take on more risk than they can deal with, stress takes over and they start making bad decisions.
• They become married to a trade, they become stubborn and ignore their stop losses, wanting to be “right” they wait while losses mount.
• Their egos take over their trading. They are more concerned about proving how smart or clever they are than making money. They begin to be more concerned with bragging about their winners than managing their losing trades. It becomes an ego trip that will not end well.
• Their system does not match them, someone who likes fast paced action should not be a long term growth investor and someone who loves investing in growth stocks they believe in should not day trade.
• A trader loses many times in a row so they change systems right before the big pay off. If you have a proven system trade it for the long term benefits.

Here are some solutions:

• Understand the possible risk of loss in any trade and accept that before you trade. If you are very stressed out over a trade you are trading too big, size down.
• Honor your stop loss or trailing stop the first time. Trust me, it is not worth it on your nerves or psyche to hold a losing trade.
• If you are a disciplined trader then it is your system that wins and loses on every trade, not you. It is not a victory or loss for your ego after each winning or losing trade. Trend traders make money when there is a trend, growth stock investors make money in markets rewarding growth stocks, day traders make money when their planned entries work out. The market determines if you win or lose by whether it behaves in a way that is conducive to your system winning.
• You must adjust what you are trading, the time frame you are trading, and how big you are trading until you are comfortable with it completely.
• Decide who you are as a trader, find the system that fits you, and stick with it over the long term.

The less emotional you can make your trading and the more it feels like a business, the more successful you will be as a trader.

Why Does The News Always Move The Market?

Clearly news must be important.  One might think, given its abundance, that news is more important than money, or love, or family, or even food!  It is a wonder scientist have not spent more time studying the phenomenon of news the way they have studied other resources which are essential to human survival.  For certainly the evidence suggests that without news, society would come to a grinding stop.  Perhaps, were a scientist to study the why of society’s news addiction, they would discover that in fact it must have a monetary importance!  That’s why news is so essential to our everyday life.

While readers of the tabloids certainly would not agree with this conclusion, anyone who watches the financial news networks would see the obvious evidence.  After all, that is the reason they exist.  To provide the news as it relates to money.  And thankfully, there is no lack of essential news to drive the financial markets.

Have you ever noticed how major news events miraculously occur at major pivot points?  How does news manage to time these releases so perfectly?  I never cease to be amazed.  A stock, or an index, approaches a major pivot area and like clockwork a news report is released just in time to dictate the next direction of the trade.  How can news be so timely?

The answer is IT’S NOT.  The timeliness of news is related to the psychology of the people investing.  Investors,  regardless of what they have been told, have an underlying belief that up is good, and down is bad.  This belief leads investors to dismiss bullish markets as normal, and look for excuses for bearish markets.  Rational human beings?  Of course not.  It must be something outside of us, something greater – the news!  But the facts remain; it is not news which drives the markets.  News simply kicks people over the edge by acting as a unifying voice of the herd which was already feeling one way or the other.  I know that statement is pure controversy to traditional thinkers. 

Think about it:  How often does the United States have riots?  Moreover, how often does the United States have riots in multiple parts of the country at the same time?  Yet during the month of October that is exactly what the “occupy” movement has been able to pull together.  The news in the month of October was full of angry anti-capitalists and anti-government protestors taking over parks, city blocks, government lawns…. Heck! By the news reports you’d think these occupiers are multiplying like rabbits!  Yet the market roared forward.

In reality the month of October was riddled with negative stories, any one of which could have, and justifiably should have sent the markets tumbling… yet the market roared on.  Why?  Because when the herd of human behavior falls into a deep belief that the buying opportunity exists to make money, the news is suddenly irrelevant – after all, they are “investing on fundamentals”.

Why do these things keep happening?  More importantly, how do they miraculously keep happening at pivot points?  The answer is simple:  Markets do not move based on news, and not based on fundamentals, but rather, markets move based on human emotion.  And human emotion moves in waves, just like every other part of nature.

For this reason, Technical Analysis is the only form of market analysis which can truly predict market movements.  Sure, we don’t specifically know which news story will break when.  And technicians don’t specifically know exactly what the herd is feeling, but based on solid technical analysis, a well trained analyst can easily determine where those changes in mood will occur, and after confirmation, they can trade those mood swings for great profits.

Where to Learn How to Invest for a Carefree Future

Since the oldest of times, people have been interested in various ways to evolve, make their way of living better and not have to worry about the next day, the next season or the next year. The result of all these worries and efforts is in this modern day and time money. Regardless of their age or the exact place on Earth where people live, all individuals are interested in having money, earning money and multiplying it with the aim of improving the comfort in which they live, the standards of living that characterize their lifestyle and of reducing any worry and endeavor necessary to ensure the continuous improvement of the aforementioned standards and criteria. The modern economic system of the world imposes that the most convenient, profitable and modern way of ensuring a financially secure future is by learning how to invest.

Learning how to invest can be tricky, but on the same time it has enormous benefits that everyone can get to enjoy. Imagine you never having to worry about how you are going to pay the mortgage, the next month's rent or the bank interest for your new car. Some people learn how to invest by experimenting with their own money. However, it is obvious why this method has so many flaws. First of all, it is a very lengthy process. Sometimes it takes years or decades of successful or unsuccessful financial experiments to become able to grasp specific inside concepts, notions and phenomena. Secondly, with all the gambling this uncertain technique requires, anyone who is brave and confident enough to try it runs at risk to lose important sums of money, which can generate debts that can be perhaps never paid back. Therefore, learning how to invest on your own is not for everyone, as it presents numerous dangers and threats to your wellbeing and the wellbeing of your loved ones alike.

Taking financial education classes in order to make sure that you will become able to benefit from a sturdy, wholesome financial education, with no risks involved in the learning process or in your attempts to capitalize on the knowledge, tips and information acquired throughout the financial education classes is the most often encountered advie. Nowadays, there are numerous institutions which offer the possibility to take part in financial education classes, but these come with the necessity to invest a lot of time which many of us do not have, money and also energy in them. Therefore, all individuals who want to make the most of any offering to learn how to invest and not neglect their day jobs, their families or their social lives must redirect their precious free time towards finding an online based institution able to offer them the financial education classes that they need, when they can attend them and with the possibility of getting as much help as needed and of being free to set the rules and the pace for the learning process. Just remember that learning how to invest has never been so easy before and make use of all the means that the internet puts at your disposal to create a better future for yourself!

Dow Theory

Charles Dow was the son of a farmer, born on November 5th, 1851, in Sterling, Connecticut. Regarded by many as a quiet, honest man, what Dow lacked in formal education he made up for in pure tenacity and determination to discover the truth. His strong will and knack for investigation led him to become a journalist at the age of 21 and eventually led him into the field of financial journalism. By the age of 29, Charles Dow found himself in the big city of New York writing daily financial columns.
 
In 1889 Dow and his buddy Edward Jones started and published the first edition of the Wall Street Journal. By 1896 Dow had researched the most influential movers of the economy and devised an index to track the overall market. The first issue of the index was comprised of only 12 stocks, all stocks which were said to represent the industrial side of the country's economic well being. Just a few short months later, Dow began to also publish a transportation index that initially consisted of 11 companies, 9 railroad and 2 non-railroad stocks. Even though these two indexes have grown to represent 50 companies (30 in the industrial average and 20 in the transportation average) and several companies have come and gone from the indexes, they are still in common use today and are considered by many to be extremely accurate gauges of the overall health of the economy.
 

While these two indexes bearing the name "Dow Jones" are certainly the most widely recognized claim to fame for Charles Dow, some would argue they are not his greatest achievement. It is fair to say Dow actually created one of the first technical indicators through the use of his index, a monumental contribution to the world of financial analysis in and of itself. But at the same time, Dow published in the Wall Street Journal a series of articles that outlined and documented his observations on the market, particularly as it related to the indexes. These writings would later become known as "Dow Theory" and would earn him the title as "The Father of Technical Analysis" in most circles.
 
Charles Dow himself never referred to his writings as "Dow Theory." That title was attributed to his work by William Peter Hamilton (Dow's successor at the Journal). Through continued research and compilation, Hamilton codified Dow's work and rightly credited it as "Dow Theory" in his book The Stock Market Barometer in 1922.

Throughout most of the 20th century, Dow Theory was dismissed by many as irrelevant, mostly because of some incomplete studies performed by Alfred Cowles in 1937. However, in more recent years Dow's principles surrounding how the market moves have been resurrected. With the advent of modern tools, traders have begun turning to technical analysis as a preferred method of analyzing stocks to the more traditional methods of fundamental analysis. In the process, the theories of Charles Dow have been brought to new light and newer studies have proven them to be incredibly accurate and a great insight into market behavior.

On the most basic level, Dow's principles of market behavior can be summarized into six basic tenets. They are:
• The price discounts everything.
• The market has 3 trends.
• Major trends have 3 phases.
• The averages must confirm each other.
• Volume must confirm the trend.
• A trend is assumed to be in effect until it gives definite signals that it has reversed.
 
These tenets form the basis for Dow Theory and can give both the trader and the investor great insight into likely future moves of a stock.
 
This first tenet of Dow Theory is in many ways the most difficult to accept for many investors. This is because most beginning investors have learned at least some basic concepts of investing by following fundamental analysis. In the world of fundamental analysis an investor studies all the different fundamental factors of a company to determine if it is trading at a fair market value. These factors include such things as price/earnings ratios, company cash flow, dividend payments, etc. Most fundamental analysts also look at future projected growth through new product offerings, potential acquisitions, new competition, and other similar factors. For the fundamental analyst these factors form the basis of their investing decisions.
 
The goal of the fundamental analyst is to observe all of these various factors and determine what he/she believes the future value of the company will be worth. If the company's current stock price is substantially below the projected value, then the company is worth investing in. The strategy of a fundamental investor is to buy a stock when it is trading at a good value and hold it while the stock rises with the company's future performance.
 
In and of itself there is nothing wrong with the theory of fundamental investing. But Charles Dow discovered many years ago that it does not take long for the fundamentals of a company to be observed by the majority of the people buying that company's stock. This observation is the basis for the tenet that the price discounts everything.
 
What Dow meant is simply this: All the fundamental data has already been factored into the purchase of a stock. Consequently the current price at which a stock is trading is not as much directly related to the fundamental value of the stock as much as it is related to the speculation of the traders as to the future value of the stock.

When I teach this principle to my students, I often say the observation this way: There are only four days a year when the core fundamental data changes for a company -- the four earnings days. Earnings are announced once a quarter, and on that day companies come out and make statements concerning overall company health and also give projections for the future earnings. But the price of a stock changes on a daily basis. If the fundamental data alone were to determine the price of the stock, then after the initial release of data investors would rush to re-price the stock at a fair market price in line with the company's newly released fundamental data. Then the price of that stock would stay the same until the next earnings announcement, at which point the investors would again re-price the stock to the current fair market price.
However, this is not what we see. What we see in the price of a stock is a very quick adjustment in price after earnings are released. Then every day between this adjustment and the next earnings release the price of the stock moves. For many stocks that move may be 40-60% or more of the value of the stock! So my question is this: If the core fundamental data only changes four times a year, what causes the price to move the other 361 days a year?
 
The answer is investor anticipation, generally through assumed (or speculative) circumstance. This is exactly what Charles Dow mean when he said the price discounts everything. The price, as it is reflected today, has already factored in to it the most recent changes in fundamental data. Thus, all price moves from here forward until the next release of fundamental data is not a reflection of core company value but of the speculation of the traders and investors who are expecting the price to be worth more (or less) in the future.
As an investor this is solid information to know and understand. What it means to you is it may be useless to spend hours pouring over hard fundamental data. After all, there are high-paid analysts who do nothing but pour over that very data. In the words of one of my mentors, "What makes you so special that you are the first to see the opportunity?" That's why it is beneficial to move beyond fundamental analysis and analyze a stock's price behavior apart from the fundamentals alone.

The Credit Spread

Up to this point here at Equityscholar.com We have had the privilege of reading many of your technical analysis related questions and responding to them. With that in mind, I have decided that pulling from this pool of questions would be an ideal place of inspiration. Here I go…

In Lesson 3 of the Options trading course we speak about making money in three directions: up, down and sideways. Knowing that the credit spread is a strategy employed in a sideways moving market it is appealing to many of us when the market is doing precisely this, moving sideways.

The key to this strategy is the understanding that so long as the price action does not reach within parameters of the spread we are a-okay…as the adage goes, you set it and forget it. The problem occurs when the price action decides to move against us. What to do? This is the question I often times receive. “What do I do now that I have placed this spread and the price action decided to run head first into my short leg. What do I do!?!”

I am a major proponent of spreads, I especially love weekly spreads; great tool to have in your back pocket for the appropriate time! That all said, one of the caveats I often share with my coaching students and now you, is that prior to placing a single spread you had better understand and more importantly be comfortable with trending trades. Yes, I’ve said it. To all of those readers out there with the thought that: well I can just place spreads forever and not ever have to place a trending trade you are oh so wrong. Well not really…you can always just take a loss… But to those of you who would like an opportunity to unravel the spread it is best to understand how to do just that: Trade to targets, enter a trade upon seeing/receiving confirmation, and simply trust your analysis.

 Instead, prior to setting up your next spread, simply make sure and practice thoroughly the unraveling process.

Private Equity Financing Is Available for Major Expansion Projects

Finding funding for a major business expansion can seem like a daunting task to even the most experienced management. For this reason, it's always advisable to seek private equity financing through a professional fund raiser.The main reason, of course, is that a professional has a ready list of potential funders that are most likely to be interested in your project. There are plenty of other reasons too, and these reasons specifically address your business needs.
· Reduces the time it takes to find, negotiate and close the financing deal
· Able to identify specific private equity funders with sufficient capital
· Can provide invaluable assistance throughout the entire project so that you are never floundering at any stage of the negotiation process
· Able to provide critical information about expectations of particular funders so funding request can be targeted
· Saves your business money and time by handling many of the tasks you would have to pay high priced management to handle
· Has in-depth knowledge of funding marketplace
A professional that specializes in locating funding for major business projects can search for private equity funding while also assessing other potential funding sources. For example, your business project may be eligible for business loans or venture capital. There may be angel investors interested in funding a phase of your project. It should be clear by now that locating funding is a complex process that involves much more than preparing a business plan. The process includes multiple steps that reconcile your business needs with the marketing of the project in a way that makes the project appealing to investors.

How to Invest using Relative Strength

Relative strength or relative weakness is assessing how strong or weak a stock is compared to something else, whether it be against the market, other stocks in the same sector, or other stocks in general. Using relative strength or weakness has been around for a long time and there are many traders who make a considerable living trading only this approach.

In terms of relative strength to the market, you want to long stocks that are stronger than the market and short stocks that are weaker than the market. When you are looking at sectors or industries, you want to long the strongest stocks within that sector or industry and short the weakest ones. You can also see how different sectors or industries are acting to see which ones are leading the market and which ones are lagging. You can then long stocks from the sectors or industries are leading the market and short stocks from the ones that are lagging.

You want to compare the way the different stocks and the market are performing in terms of percentage change from the open so that you don’t get lured into thinking that stocks that gapped up or down are stronger or weaker than they really are. Look for stocks that are outperforming or underperforming the market by a good margin. There is more momentum in the trend of a stock and moves that are not as big in the pullbacks or corrections in stocks that are stronger or weaker than the market and are showing signs of interest from institutions.

Stocks that are up on days when the market is selling off have relative strength. These are the stocks that you should be long on. And vice versa, stocks that are down on days when the market is having a big up days have relative weakness and these are the stocks that you should be short. By implementing this approach, you will vastly improve your trading.

How to Invest using Relative Strength

Pivot Point Trading for forex and futures

Before computers and ADP equipment, pivot points were used by floor traders on equity and futures exchanges as a simple way to forecast the direction of the market during the day. Despite often being included in historic trading strategies, pivot points are still used by Forex traders to determine support and resistance levels. According to Jamie Saettele, senior currency strategist at Forex Capital Markets LLC, pivot points actually work very well in Forex markets because of the large size of the market, especially when used with very liquid pairs.

Pivot points basically provide a trader with reference points. These points help to determine when to enter the market, place stops and exit. Each point basically supplies a support or resistance level. The pivot point and levels are calculated based on information from the previous day.

There are several different ways to calculate pivot point and levels. In fact, there are eight different formulas for just calculating the pivot point. Different methods include the Woodie, Camarilla and Tom DeMark pivot points. The simplest formula uses the High, Low and Close from the previous day. There are three levels of resistance, the pivot point and three levels of support.

Calculations are made as follows:

To determine the actual pivot point:

Pivot Point = (High + Low + Close) divided by 3

The first resistance and support levels are now calculated:

Resistance 1 = (pivot point times 2) – Low
Support 1 = (pivot point times 2) – High

The second resistance and support levels are calculated:

Resistance 2 = (R1 – S1) + pivot
Support 2 = (R1 – S1) – pivot

The third resistance and support levels are calculated:

Resistance 3 = [2 times (pivot-low)] + high
Support 3 = [2 times (high - pivot)] + low

There are a select few analysts who actually go as far as adding a fourth level of support and resistance, however this often becomes a bit esoteric for trading purposes. There are also ways of tracking the mid-points between each level.

The pivot point on a day with an high of 1.2297, a low of 1.2213 and a close of 1.2249 would calculate to be 1.2253. Using the pivot point, we then set our support and resistance levels. They will go from top to bottom on the chart as follows:

R3 = 1.2477
R2 = 1.2337
R1 = 1.2293

Pivot point: 1.2253

S1 = 1.2209
S2 = 1.2169
S3 = 1.2125

The best way to fully understand how pivot points work is to actually do the math yourself, looking at the forex charts. Using the EUR/USD, calculate your pivot points, support levels and resistance levels. You will notice that the trading range for the session you are looking at will usually occur between R1 and S1, with the pivot point being at the center of the movement. The majority of breaks will occur around one of the market opens. At this time there is an influx of traders entering the market.

There are many different strategies to use pivot points, including the combination of identifying candlesticks with pivot levels. For example, if prices are trading below the pivot point, but then break above the pivot while forming a doji, the trader might sell short because of the expected drop back below the pivot point.

The pivot point can also be used to validate the strength of a movement. For example, the price breaks the pivot level, reverses and then trends back towards the pivot level. It then moves through the pivot point. This could indicate that the pivot level is not very strong. However, if a price hesitates around the level for a period of time, the pivot may be more significant. A future move towards the pivot point may actually be a break, indicating future movement.

Pivot points are also used to judge the probability of a move. For example, analysis shows that between the inception of the Euro on October 12, 2006, the actual low has been lower than the average S1 44% of the time. A trader my put a stop below S1 with confidence, based on probability. However, this information is generally more useful as a support tool to limit risk, combined with other types of analysis.

In general, there are a few tips to keep in mind when it comes to using pivot points:

When a price opens at a certain level, it will generally move to the next level on either side. For example, if it opens at pivot point, it will move back to R1 or S1. If it opens at S2, it will move to S3 or S1.

When there is no significant news or events to influence the market, the price will usually be confined between R1 and S1.

Significant news can drive the price to R3 or S3.
R3 and S3 are usually the maximum ranges for extremely volatile movement during the day. But they are just an estimation, not a certainty.

In a strong trend, the price will go straight past a level without any hesitancy at that point.

Many different types of traders use pivot points as a key part of technical analysis. Technical indicators, such as pivot points, help traders to identify levels of support and resistance. They help to identify moves that can be considered as breakouts and where the maximum and minimum ranges of movement will occur. Understanding the turning points provide an investor with the ability to make educated transaction decisions. Pivot points can be used with many trading strategies, making them a simple and useful tool for trading.

Join the Live Trader Chat Room and Learn How to Invest Money Wisely

It is not always easy to get a financial education. In fact financial education services represent the most sought-after, but also the hardest to find types of services and most of the time they are valued at thousands of dollars, which makes it impossible for numerous people to get access to them. However, Equity Scholar, which is the most committed and professional company that operates to give as many people as possible the opportunity to enroll in financial education classes on Equities, Investing, Options, and Forex in order to learn how to invest so as to see profits as easily and as rapidly as possible, has made all the efforts possible to reach individuals from all regions of the globe who interested in getting financial literacy education for the lowest prices and in the most comfortable manner.

Aside from the fact that Equity Scholar puts at your disposal the possibility to take part in in-depth financial education courses, get your own Equity mentor if you are in need of help or use the top-rated customer support service for any inquiry you might have, you are also able to chat with your own peers, individuals who are probably the ones that best understand what you are going through, your desires to learn how to invest in stock or the fears that you might fail by using the Live Trader Chat Room option.

Equity Scholar acknowledges that a financial education program is crucial for success when it comes to investing money. This is why the range of learning opportunities is not restricted to the financial education courses at Equity Scholar. Additionally, students that are preoccupied and willing to learn can access the numerous articles that provide tips and personal experience stories shared by experienced Wall Street traders or ask questions and receive accurate and relevant feedback that is meant to help them reach their full potential and minimize the chances for failure or unwise investments.

If you are interested in getting a financial education, there is certainly no better partner to help you make this dream come true than Equity Scholar! Sign up for financial education classes now and turn your life around!

About Equity Scholar

Equity Scholar is the most reliable and trustworthy company that activates in the fields of financial education, investing as well as retirement assistance. Equity Scholar offers traders of all ages regardless of their previous experience the chance to get in-depth financial literacy education and better themselves on a professional level as well as their operations and, of course, profits.

The New York based company has found excellent ways to provide traders and prospect traders with knowledge, facts and data about trading and investing by supplying them with innovative technologies and comprehensive strategies that have been developed as a result of the extensive experience on the Wall Street, one of the most competitive, yet famous trading environments in the word.

If you are still not convinced, Equity Scholar makes available for you a series of sample videos and images meant to aid you in making the correct decision regarding enrolling in one of the programs so as to commence your financial education training. Sign up now and give yourself the chance to make a better future for yourself and your loved ones by becoming part of the Equity Scholar community!

For more information about our services, please visit http://www.EquityScholar.com

Trading the Illogical Oil Bench mark Spread

The two most widely used and traded crude oil bench marks are West Texas Intermediate (WTI) (to be delivered at Cushing, Okla.) and Brent (delivered at Brent in Europe). WTI crude is the U.S benchmark and used for 40-50% of the world’s crude oil. Brent crude is made up of different types of crude oil found in the North Sea. Brent is the European benchmark for 50-60% of the world’s crude. Both of these crude oils trade as futures on the Nymex and the ICE. The crude at both places are comparable: Both are light, low sulfur crudes, with WTI slightly more favorable for gasoline production, while Brent Blend favors diesel production.

Spread Between WTI and Brent

One of the most widely traded and followed spreads in the crude oil complex is the WTI-Brent spread. WTI typically trades at a premium to Brent, reflecting its superior, lower-sulfur composition and also the additional cost of shipping crude to the U.S. The New York benchmark is normally $2.50-4.00 more expensive. The spread is mean reverting with MRL quite near zero for different time periods. Currently the spread has widened to the level which is two standard deviations below normal and is likely to revert and overshoot on the other side. The statistical probability of this reversion is 95%, and on seven of the last eight occasions, the spread reversed from the extreme level.

Drivers of Spread

WTI has historically traded at a premium to Brent in a normal market. Current WTI 0il futures in New York are below London’s Brent benchmark, as inventories at the U.S. delivery hub dropped on higher inventories but may recover on expectation of a crimp of fuel demand in Europe on slower growth. Crude oil on the New York Mercantile Exchange rose as much as 31 cents above Brent yesterday. The spread is affected by several drivers:

1. Crude oil inventories: The single most compelling driver is the level of crude oil inventories in the United States PADD 2 (Cushing, Okla. is a subset of PADD 2 and the Nymex delivery location for WTI) or midwest area. When crude oil inventories in PADD 2 are increasing, the WTI/Brent spread normally decreases and may even turn negative, as has been the case over the last 18 months. When inventories are declining, the spread normally will turn to a premium in the favor of Cushing, as it did in the second and third quarters of 2007.

These are both very pronounced and long-term moves, but when looking at the chart closely, the relationship also exists even during periods when inventories increase or decrease by a much smaller amount than the large movements previously mentioned. From both a financial trading and physical crude oil pricing perspective, the optimum trade had been to be short WTI/long Brent for the last two months or so. But that strategy seems to have run its course. Crude oil stockpiles in Cushing will decline as U.S. demand for gasoline typically surges during the summer driving season.

2. Refinery runs: During the last two weeks of February, crude oil inventories may start to decline in the PADD 2 region of the United States as improvement in refinery runs may slowly begin to eat away at the crude oil overhang. In February, OPEC produced and exported about 4.2 million barrels per day less oil than it did in September 2008, and any hiccups in supply will be positive for WTI prices and spreads.

3. Driving season: With a pick-up in gasoline use in driving season that begins with the May 31 Memorial Day holiday -- a period of high consumption in the U.S. -- the spread balance between WTI and Brent shifts in favor of WTI, as increases in gasoline use in the U.S. are higher compared to EU / emerging markets. It is expected that the WTI discount to Brent will narrow / reverse in March / April. The relationship will change if supplies in Cushing, the delivery point for Nymex futures contracts, start to decline.

4. U.S. dollar and euro outlook: Lately there had been some divergence between WTI price and the U.S. dollar trade-weighted index which shows underlying strong sentiment. Notwithstanding that, the trade-weighted U.S. dollar had been a significant historic predictor of WTI oil price. Also, we expect the U.S. trade-weighted dollar to keep its structural slide against major currencies after some blips. That is only the path of least resistance for crude oil price, and is likely to be positive for WTI price. While a high stock level traps WTI, the decline in the dollar index may result in relative strength in WTI.

5. Europe versus U.S. growth: Higher GDP growth rate in the U.S. compared to the EU should also be supportive of the WTI leg of the spread. The U.S. economy has been estimated to grow by 3.3% in 2010 and Japan's GDP to increase by 2.4% in 2011. U.S. gross domestic product will grow 2.6 percent this year and 2.1 percent in 2011, per IEA estimates. IMF has also predicted OECD to grow by 2.6 percent in 2010. It is also estimated that U.S. households will spend an average of $986 between October and March to heat their homes, an increase of $24, or 2.5 percent, from last winter, per the EIA Winter Fuels Outlook. U.S. WTI consumption is estimated to climb another 0.11 million barrels to 19.08 million in 2011. For the EU, the IMF has reduced its 2011 outlook from 0.2 percentage point to 1.3 percent.

The spread started between WTI and Brent is expected to narrow, as stockpiles in Cushing may decline and concerns may grow that European growth will be slow in the coming months. Because of the European debt crisis, demand in Europe might be affected -- and that would affect prices of Brent oil more than WTI. Oil demand among European members of the OECD will also increase this year, according to the International Energy Agency.

6. Relative expansion of monetary base in the U.S. and the EU: The second round of quantitative easing (QE2), and the fact that the interest rate will remain low and longer than the markets' expectation (meaning probably through 2012, instead of 2011), will be positive for WTI. Such policy typically will further weaken the U.S. dollar, while pushing up prices of dollar-denominated commodities such as WTI, which could lift the spread. The European Union has announced a bailout plan worth almost $1 trillion, in addition to the €110 billion ($135 billion) of aid to Greece to help ward off a slowdown caused by the region’s debt crisis. Europe was forced to bolster rescue measures for Greece and other debt-laden economies in the region. Euro fiscal expansion is deemed to be positive for Brent oil prices, but less so compared to WTI because of a gap between quantum and efficiency of response.

7. Fiscal and monetary tightening in China and East Asia: Further rate hikes in emerging Asia and China should weigh more on Brent compared to WTI. Although the government has implemented a series of measures, including increasing RRR and raising margins for certain commodity futures, the impacts on inflation are not significant. Any further tightening in Asia will be supportive of the spread as the Fed stays on its course of loose policy.

8. Equities markets correlation: WTI prices are more closely correlated with equity indexes, which are rebounding, while Brent reacts more to supply and demand, as noted by Commerzbank’s Weinberg Report. The expectations of good performance by U.S. equity markets in 2011 may result in a relative out-performance of WTI compared to Brent. The decline in stockpiles at Cushing may lead to a narrowing in the discount of prompt crude oil contracts versus those for later delivery, or a contango.

Risks to Spread Trade

One of the risks to the idea is that China’s economic growth is becoming increasingly dependent on meeting its rapidly growing demand for oil from both domestic supply and foreign imports. China’s net crude imports in 2010 totaled a record 275 million tons, or roughly 5.9 million barrels per day, and imports are believed to make up roughly 55% of its total oil consumption. Increasing oil demand is not only attributable to increased vehicle use in the world’s largest new car market, but also to industrial activity. Electricity demand in China grew 22% in 2010.

A recent International Energy Agency report suggests that China may now be the top global energy consumer as well. In 2007, Chinaannounced an expansion of its crude reserves into a two-part system. Chinese reserves would consist of a government-controlled strategic reserve complemented by mandated commercial reserves. The government-controlled reserves are being completed in three phases. Phase one consisted of a 102 million barrels (16,200,000 m3) reserve, mostly completed by the end of 2008. The second phase of the government-controlled reserves with an additional 170 million barrels (27,000,000 m3) will be completed by H1 2011. This implies an additional import of 0.5 million barrels per day in 2011.

Zhang Guobao, the head of the National Energy Administration, stated that there will be a third phase that will expand reserves by 204 million barrels (32,400,000 m3) with the goal of increasing China's SPR to 90 days of supply by 2020. The planned state reserves of 475 million barrels (75,660,000 m3), plus the planned enterprise reserves of 209 million barrels (33,298,000 m3), will provide around 90 days of consumption, or a total of 684.340 million barrels (108,801,000 m3). In total, it may require an additional 2 million barrels per day on top of China’s regular imports, which may tighten the Brent crude oil markets even further.

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Consider a Roth IRA

Have you heard about this recently? The government has set up Roth IRA rules that allow you to save and earn money for retirement that won't be taxed when you take it out. Does it sound too good to be true? Well, it isn't. You can really save the best for last when you set up this type of savings account.
The definition of a Roth IRA, named for U.S. Congressman, William V. Roth, Jr., is a retirement savings account in which an individual is allowed to set aside a specified amount of their income, after taxes. Earnings grow tax free and can be withdrawn, tax-free, at age 59 ½.

Allowable Contributions

In 2008, Roth IRA rules limit allowable contributions $5,000. Making maximum contributions annually, while earning just a modest 8% interest, means that you could build a substantial, tax-free nest egg. While this type of retirement savings plan may seem ideal, there are some additional Roth IRA rules that you should be aware of.

Allowable contributions must come from income that your earn from a job. If the income from that job is over $101,000, your maximum contribution will be lowered, from $5,000, incrementally, according to your income amount. If you file a joint tax return, your combined income cap is $159,000. Above that amount and, again, your allowable contributions will be lowered accordingly.

If you are at a point in your career where your income is well below the maximum cap, but you expect to meet and exceed that cap in the next few years, you would still be well advised to take advantage of a IRA. The earnings from contributions made even over a short period of time could add a substantial tax free bonus to other retirement savings.

Added Incentives

And speaking of bonuses, Roth IRA rules provide some added incentives for individuals holding these accounts. For example, you can withdraw your contributions (not your earnings), any time, tax free. This may come in handy if you find yourself in financial dire straits. Ideally, though, this money really is for retirement and shouldn't be touched, if possible.

If you've had a IRA for at least five years, you can also withdraw up to $10,000 ($20,000 if you're married) tax free to purchase a home. If you've had your account less than five years, you can still withdraw the maximum amount for a home, but you will have to pay taxes on it. However, there is no 10% early withdrawal penalty.
Roth IRA rules also allow you dip int
o your savings to help pay college expenses. You are allowed to withdraw contributions tax free, but if you take out earnings, they will be taxed accordingly, without the 10% penalty ¬ provided that the funds are being used for college.

Allowable Investments

You may notice that the definition of a Roth IRA doesn't cover investing your contributions so that you can grow your earnings. However, according to Roth IRA rules, you are allowed to invest in almost anything ¬ stocks, bonds, CD, mutual funds and even real estate.

You can set up a self directed IRA that will give you decision-making authority over investments. If you don't care to be more involved beyond making contributions, your financial institution or investment counselor will invest your money for you. In both cases, the custodian of your account will be responsible for generating reports, regulation compliance, and other applicable paperwork.
If you follow Roth IRA rules, you can get your taxes out of the way, save and earn money and never have to give Uncle Sam another dime. This allows you to truly save the best for last!

Disciplined trading

The Equity Scholar Team

As an investor it is important to understand how economic indicators can impact stock markets, investing, and the value of your investments.

The key to your success will be looking at these economic indicators, extracting what Economic Indicators and key statistics that show where the economy is headed by monitoring inflation.

The reason why inflation is of importance is based on the fact that it influences the level of interest rates. Stability within the economy is maintained as long as inflation is kept under control. Rising inflation reflects rising prices caused by increasing demand and decreased supply.

In other words, the increase in prices of goods and services would erode the purchasing power of the money you make, on the assumption that the money you earn does not increase in line with inflation. To put it simply, Governments use economic indicators as tools to ensure stability within the economy. Consequently the individual indicators of inflation like the consumer price index; unemployment and gross domestic product cannot be directly manipulated.

Interest rates determine the willingness and ability of individuals and businesses to borrow money and make investments. Changes in economic activity, when triggered by changes in interest rates, for companies, higher interest rates often mean lower profits. If interest rates rise, companies have to pay more, to borrow the money they require to fund growth of their buisness.

This translates into higher prices for their goods upsetting the price supply equilibrum. Especially if customers are buying on credit and have to pay higher interest rates for them to borrow. Potential customers may decide they cannot afford to buy products as the cost of credit is high.

The eventual decline in company sales and earnings is something investors anticipate as soon as rates go up. The result is that stock prices go down before the effects of the increased interest rates are actually felt on the company's bottom line.

When interest rates fall, company borrowing costs are lower, so their profits on the same level of sales will be higher. so , customers who buy on credit are more comfortable buying if they are paying lower rates, so the more they purchase.

This creates higher sales, which will lead to increased company profits. Eventually higher profits will lead to an increase in stock prices. This situation creates an environment where investors are typically ready to pay higher prices as soon as the Central Bank intervene to cut interest rates in the anticipation of the cycle of increased profits. As an investor it is important to remember that the price of your stock will change throughout its lifetime because the price you actually obtain will be determined by current market conditions and more importantly interest rate fluctuations.

Helping you with your Financial Education

The Equity Scholar Team

Equity Scholar