Tharp's Thoughts Weekly Newsletter

• Feature Article: EURUSD – One Critical Trading Habit Needed Now, by Gabriel Grammatidis
• Workshops: Early Enrollment Discount Ends Tuesday On August Workshops!
• Trading Tip: Billionaires Bail on Stocks — Market Doesn’t Care. Should You?, by D. R. Barton, Jr.
• FREE BOOK!: Trading Beyond the Matrix

$700 Early Enrollment Discounts End Tuesday
on These 2 Workshops!

Major bear markets come only once in a while but “lesser” down moves can be found almost any time — including during bull markets. This workshop prepares you for both situations.

The Trading in a Bear Market and Down Markets Workshop helps you learn how to think about trading broad bear markets or trading a specific asset class, sector or even single symbol that is in bear mode. For a major bear market, think equities in 2008-2009. For a move limited to a sector move, think oil in 2014-2015. Imagine having had some ways you could have traded those periods effectively. Start using the information from this workshop when you return back home — and also be prepared for the next big bear market.

The workshop's objectives are to ensure you are prepared to prosper in the next bear market. Specifically you will:

• Study in depth the concept of a bear market.
• Learn what a bear market truly is and learn several ways to define and measure the bear market type.
• Know when a bear market type might be starting and how to know when it might end. 
• Learn several different trading strategies suited for bear market conditions.
• Learn how options and hedging can be especially useful for bear market types. 

Click here to read how Bear markets present traders with a unique set of opportunities.

For more information on this workshop check out this short 3-minute video from instructor Kirk Cooper.


System Quality Number^SM — A New Workshop! In response to long-requested help from our trading clients, Dr. Tharp developed his SQN theories for his book The Definitive Guide to Position Sizing Strategies. Since then, many traders have asked for more information on applying theory for developing effective position sizing strategies that help you meet your objectives — in other words, just HOW to do this. For the first time ever, RJ Hixson will spend two days showing you how to do this through a series of lectures, case studies, individual exercises, and group work.

For an overview of this workshop watch our short 3 minute video.

$700 Early enrollment discounts expire Tuesday on these two events.
Register now to get these discounts and secure your seats!

Feature Article

EURUSD – One Critical Trading Habit Needed Now

by Gabriel Grammatidis

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You may have noted that Van stresses repeatedly that good trading habits are an important factor in successful trading. At workshops, attendees ask me constantly what I think the most important trading habit should be. It is critical for trading success to follow good trading habits and my experience tells me one is very important over others — and you might not guess which one. As a new trader years ago, it’s not the one I would have said.

Which trading habit is most important?

I think the most important habit is also one of the most overlooked and understated — knowing when to “Stay out of the Market.” Reasons to stay out of the market are many and include:

• You are not feeling well (e.g. due to an illness),
• There is a special event in the market (e.g. Brexit vote or another important news item coming up) or
• Most importantly — the market environment is not beneficial to your trading strategy (trend followers should trade charts that are trending).

Below there is a basic outline of Van’s Top Tasks of Trading (see Peak Performance Home Study course).

As you can see on the bottom of the graphic, the task “Staying out of the Market” is across the spectrum of the framework of tasks. We will discuss each of the tasks at the upcoming Forex Workshop in September and during the simulated trading sessions, we will cover how to apply each one in practice. Of course, we will follow this process as well in the live markets during the Forex Live workshop.

Truly, all of the tasks are important to trading success but you should always be asking if you should be trading right now. And right now, the question Forex traders should be asking is if they should be trading the EURUSD pair. Staying out of the market at the appropriate times means you only trade when the market is in your favor. As such, you prevent draw-downs and you can still continue trading — but only when you should be trading.

Trade EURUSD or Stand Aside?

The EURUSD is arguably the most important currency pair in the world so let’s analyze it from a charting and macroeconomic perspective. The Euro suffered a lot during the last European crisis when the Euro lost significant value against the USD going from nearly 1.40 to below 1.05. That’s a 3,500 pip move (see 12 months after May 2014) which for a major currency pair is huge. Since May, 2015 (more than a year now), EURUSD has been in a tight sideways consolidation. See the weekly chart below —

Click Here for Larger Image

This year-long consolidation can be seen as a clear trend continuation formation. Why? After the long and very strong downslide, the EUR has not been able to recover substantially against the USD. It was only able to form a shallow pullback (less than 25%). Over time, however, a consolidation range developed from 1.0471 to around 1.1423. Not being able to regain higher prices is a sign of weakness for the Euro. Quite a number of financial analysts are saying that we are seeing a bottom for the Euro but from a charting perspective, the pattern indicates pure bearishness and continued USD strength for a couple of more years. Once any price has made a strong trend move, it actually needs a “refresher” for some period of time. Price consolidations within a trend are times of pause that are required for the trend to regain strength again and continue.

I traded the EURUSD a lot during its drop into May 2015 but the last year has not been a time to trade the pair. In a price consolidation like this, you should be very cautious and stay out of the market if you are a trend follower. Trading is better with the favor of a trend on your side. Not to worry, sooner or later the EURUSD will be sufficiently “refreshed” and will continue its downtrend beyond par level into the target area of around 0.8000. A first signal would be the break of the last low at 1.0910 (see red support line under the blue arrow in the chart).

Fundamentals Also Support a Weaker Euro

The existing challenges in Europe (largely as a result of the GFC 2008) are increasing and new difficulties which are also broader in scope are coming up. Just to name a few:

• Weak economic recovery
• High levels of Sovereign debts
• The UK’s “Brexit”
• Migration/refugee challenges
• State coup trial in Turkey
• Potential Italian banking crisis

In previous years, the Euro weakened but these challenges translate into continued years of a weakening EURUSD chart. Why?

You can look at a currency’s price like an emergency valve that helps reduce the pressure. As such, a weak currency can support a weak economy to gain strength. A weak EUR helps European countries export products at lower USD prices. The tourism industry benefits as well when foreigners find European vacations cheap enough or cheaper than vacations in their home country.

The flip side of a weak currency, however, is it usually leads to an increase in interest rates. Any economy requires net capital inflows and this economic law applies even more with a weak currency. A weak currency, however, typically means investors want higher interest rates to offset the risk of any further weakening (devaluation) in order to make an investment in that country more attractive. The ECB’s Quantitative Easing (QE) program in Europe has forced interest rates to historic low levels (despite Europe’s challenging fundamentals). Is this situation sustainable? Most likely not as interest rates cannot be kept so low forever. Once the QE program ends, we might see rising interest rates and some market turbulence again.

Trade During Times of Opportunities

Turbulent times imply tremendous opportunities! The EURUSD is one such an opportunity that will materialize sooner or later. You should not shy away from the capital markets in difficult economic times but rather focus on the benefits they offer. I recommend avoiding reading too much news media and instead, focus on both the short-term charts and long-term charts. The charts tell you all you need to know!

And what do the charts say now? The EURUSD chart very clearly indicates some excellent upcoming opportunities.

I also recommend focusing on how to minimize your risks. There are several ways to reduce your risk of which include — trading with the larger trend, trading only liquid instruments, and trading short-term as well long-term charts (e.g. a 4h or daily chart). Forex traders have great flexibility in what timeframe to trade with the virtually continuous open market. I like taking the best trades in whatever timeframe that might be.

Forex trading offers excellent ways to minimize your risks — you can always find trends (150 tradable pairs, many uncorrelated), you can always enter or liquidate a position, very rarely you are exposed to a gap or slippage in price. FX is the most liquid market and it is open 24 hours. These are edges other markets do not offer. Apart from the EURUSD, there is enough opportunity to benefit from. You pick the time frame that fits you best.

Good trading,
Gabriel Grammatidis

About the Author: Gabriel Grammatidis is a successful full-time trader and graduate of the Super Trader program. He has extensive experience trading Forex and shares his knowledge at his Forex and Live Forex Trading workshops, held regularly at VTI.

Read about the system — System 1: Busted Breakout.

Learn more about the flexibility that Forex offers you by watching a video segment from the workshop (What is the reality of Forex trading?).

You can see some practical example videos of the system trades on Gabriel’s website,IntuFX.com.

For more information on the Busted Breakout psychological dynamics see my article in the Traders´ magazine.

Gabriel can be reached at gabriel "at" vantharp.com.

Workshops

Combo Discounts available for all back-to-back workshops!

See our workshop page for details.

Trading Tip

Billionaires Bail on Stocks — Market Doesn’t Care. Should You?

by D. R. Barton, Jr.

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Just before my weekly spot on Fox Business’s Varney & Co. last week, one of the producers sent me an urgent message. The message had a link to an article about big-name fund managers pulling out of equities. Bill Gross had just joined their ranks and the producer wanted me to be prepared to offer my opinion about it on the show if it came up.

Sure enough, among other questions, Stuart Varney asked me in his very proper English accent if I was with these billionaires bailing out on stocks. Before I get to our exchange, let’s take a quick look at all the folks that have announced that they have grown cold on equities.

Billionaires with Household Names Who Are Negative on the Markets

While I was digging around for all the big names down on the markets recently, I found a list from Nick Colas of Convergex that was making the rounds and landed on every major blog and news outlet including Barron’s and Bloomberg. This excerpt is from the original Convergex note which is worth reading —

Here’s a partial list of bold faced names that have panned stocks and other financial assets in recent weeks:

• Stan Druckenmiller (May 4th at the Ira Sohn Conference): “Get out of the stock market.”
• George Soros (June 9th, as reported in the Wall Street Journal): “The billionaire hedge fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.”
• Carl Icahn (June 9th, on CNBC): “I don’t think you can have (near) zero interest rates for much longer without having these bubbles explode on you” while also saying it’s difficult to assess when exactly that might occur.
• Jeff Gundlach (last Friday, in an interview with Reuters): “Sell everything. Nothing here looks good.”
• Bill Gross (in his monthly investment letter, released today): “I don’t like bonds. I don’t like most stocks. I don’t like private equity.”

Back to My Reply

When Stuart asked me my thoughts on bailing with the billionaires, I replied that I believed normal-sized investors and individual traders could hang around and respect the modest uptrend that the market is still enjoying. I then channeled my best Inner-Van and suggested that everyone should be prepared with a “get out” point. Funnily enough, Stuart piled on and started a rant about how easy stop losses are to set! The broader media is finally catching on ...

Later in the show, I got a chance explain the idea of a liquidity trap and why super-big funds have to exit a bit earlier than they’d prefer.

To That List, You Can Add ...

In addition to the list above, consider a few other bearish factors that should be weighing on the market right now —

Goldman Sachs made a market call on August 1st looking for a 10% drop in the next three months.

Late summer is a seasonally weak period. If we rank each month for average returns going back to 1950, August and September rank 11th and 12th. Historically, this is the worst time of the year for equity returns.

The other big overhang is the slowing global economy. China’s growth numbers continue to drop while commodity prices remain depressed (the two are linked).

Many believe that the persistent global central bank monetary intervention experiment will end badly.

So in spite of all the big manager firepower proclaiming their negative sentiments on the markets, Goldman’s 10% drop call, seasonal weakness, and numerous fundamental problems ... the S&P 500 keeps making new all-time highs.

What’s that about?

Well, rounded tops can take a long time to form.

So What?

If you’re currently invested or mostly invested, be sure that you have already defined a “get out” point or a “start scaling out” point. If you have new money to put to work, consider scaling it in over time. Or better yet, let August and September run their course and look for an October — November entry time frame when the “six best months” seasonal time frame is more conducive to buying. Please send your thoughts and comments to drbarton “at” vantharp.com — I always appreciate hearing from you!

Great Trading,
D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television — America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".

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