Recommended reading:

The great depression: How to prosper by Harry Dent
Fundamental Analysis by Jack D. Schwager 
Trade your way to finacal freedom by Tharp

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Mike's masterclass - Investor Chronicle 09_10_2009 - click here

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Catch the big moves by Mike Hamilton

Oil moved 400 points today from the high to the close of the day (3^rd June 2009); wheat moved 40 points and GBP moved 300. Why?

Fundamentals played a big part in it. A pick up in services, factory orders, employment and a significant build up in oil reserves. Were you watching for that?

Probably not, but that's why I've set up a system to bring fundamental analysis into my technical analysis (TA) so I've really got the edge in my trading. It will be launched later this summer. TA will always get me in and out the markets but fundamentals are simple to master and they expand your trading skills and take them to a higher level.

I started trading fundamentals in the mid 80's; I just bought value stocks in what was an easy trending market. I put down a deposit on a nice house with the profits. I even started to trade property by watching for data and cycles. In the last property cycle I bought in '98 and sold in summer 2006 – look at the charts and you will see why. I knew exactly what securitisation was and when I learnt how exposed the US and UK was I wanted out. Home starts, affordability levels, mortgage approvals – you name it all the data had peaked but those lazy journalists hadn't bothered to check it, the press where still talking it up. The cycle was very extended and the market had patterns of behaviour I'd seen in '88.

Trading TA is great, I love it. By the time I'd mastered the mind game, got to the point where my trading was automatic to me and found the basic few indicators that I really liked I was was doing well. I was making a good income but not increasing my wealth and my pension was rubbish; I would have been better off with a cash ISA! So I asked myself 'what is really behind these trends and reversals', How can I get in at the beginning of these trends?

I realised I needed to track where fund managers and institutions were moving money because they were the key. As the credit crunch came along this made my system really come into its own as the markets were moving or waiting for data and when I was patient and saw how the markets digested it, I took my set ups. This work has made me contrarian at times. There are gold bugs who were calling potential huge moves in gold at times when I had 40%+ profit in my SIPP after a few weeks and I was getting out (back in Feb 09). So I've found this system a massive boom and helps me avoid those choppy days too.

This is the basics: I look at market proxies, yen, US$, bonds and gold.

US$ - commodities traded mainly in US$ and the US is still the most robust, entrepreneurial economy in the developed world. They were first into this down turn and they are expected to be first out.

Yen – Its all about the carry trade. If the carry trade is in action then it suggests there is an appetite for risk and money is flowing into markets and not safe havens.

Bonds – they are an indicator of fear and inflation as they indicate where interest rates need to be set. Last Autumn fund managers moved into bonds and sent them up in what is almost a straight line in the daily chart.

Gold – an inflation hedge but last autumn it decoupled its traditional divergent relationship with the US$ and became a pure safe haven for a while. Such was the level of fear.

There is more to it than this but wait for my newsletter and course to come out later in the Autumn.

Its all bout how you use this, the relationships in the markets with these proxies and equities, currencies and commodities and its also about what data to watch out for, where to find it and how to interpret it. Www.forexfactory.com is a free source of data which is a good place to start. Check out the chart icon on the right as it gives you the chart so you can see the trends.

There are obvious pairs to watch out for and new ones I've developed. The dow has been leading oil, US$ is divergent with gold, equities are divergent with bonds – to give you just a few.

The other side to my system is cycles and I've worked on spending, inflation, housing, demographics, technology and inflation to help me develop long term direction on markets. I like to trade gold, oil, beans, forex and equity ETFs so my system dictates my plans. I've set up an easy record system so I can catch all the information and use it easily. TA will always sit above this but going into the markets with a clear direction means I can set more accurate targets, hold or close positions when I get confirmation and have the confidence to take bigger positions and hold.

If you would like to go on the waiting list for the courses and newsletters coming up, email Lee and he will let you know dates when they become available.

Mike Hamilton