Please recall with me the prevailing investor sentiment from this time last year…

U.S. stocks had been in strong decline for more than a year. Some of the most celebrated bulls had turned into bears, and the few bears that did exist before the downturn had become even more bearish. The Daily Sentiment Index for the S&P registered an astonishing 3 percent bulls — virtually no one was believing the upside was coming — and the bleakest of forecasts for 2009 called for nothing short of financial apocalypse.

But well-known contrarian analyst Robert Prechter took the opposite side of the trade. Prechter, a long-time bear, emerged as a solitary bullish voice among overwhelming bearishness. After closing out a short recommendation that gained 800 downside points in the S&P, he issued the following bullish warning to bears:

“The market is compressed, and when it finds a bottom and rallies, it will be sharp and scary for anyone who is short.”

In the following days, the mainstream media reported that “perma-bear” Robert Prechter had turned bullish — the reports were only half true. Prechter had, in fact, turned intermediate-term bullish, but he stopped short of recommending average investors to jump back in. Why?

Prechter saw something on the horizon that the shortsighted mainstream market watchers did not, which brings me to the untold portion of this story …

In Prechter’s eyes, the bear market is far from over, and what he expects to happen after the current move ends is significantly important to how you position your portfolio now.

Prechter’s firm, Elliott Wave International, is now offering for a limited time The Most Important Investment Report You’ll Read in 2010. Inside, Prechter reveals his big-picture outlook for U.S. stocks and the U.S. economy. The eye-opening 13-page report, originally published for paying subscribers to his Elliott Wave Theorist, examines the government’s unprecedented involvement in the financial markets and local enterprise. It reveals what’s already taken place in candid detail then focuses you on what the government’s measures will actually do for the U.S. financial markets and economy.

Be assured, this report delivers analysis you will not find on the front page of The New York Times or Wall Street Journal. It delivers independent insights from the man who saw the bear market — and today’s bear market rally — coming when virtually no one else did.

But hurry! This free 13-page report is available for a limited-time only due to its timely content.

Please learn more about and download the free 13-page Most Important Report for 2010 now.

Updated: You can now close individual trades when you hold multiple positions. Right click on the trade > Close Position > Close Single Trade. Only the selected trade will be shown and ready to be closed.

Added: You can now now convert a single trade to a strategy without the need to enter an option trade. Right click on a trade > Convert to Single Strategy. You can now right click on the trade and add another leg to the strategy of any type. This allows for pairs trading or other strategies that use two trades but not necessarily an option trade.

Updated: Stocks on the Indian Stock Exchange now use .NS instead of .NA for Yahoo price updates.

Added: There is now a graph in Performance Charts that shows an equity curve on a trade by trade basis. It also has a High Water Mark(HWM) line to show equity peak.

Even if you invest mostly in a specific region or sector, market moves in stocks, bonds,
currencies, gold, silver, crude oil or others around the world can have a huge impact on your portfolio.

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts
provide around-the-clock forecasts of every major market in the world via the internet and proprietary
web systems like Reuters and Bloomberg.

Elliott Wave International has agreed to give you free access to their global forecasts until May 8.
Now is your chance to get more than 100 pages of free analysis and forecasts on every major world market.

For the first time ever, EWI is giving away one month of its most popular global analysis publication,
a 120-page “little black book” of investment insights called Global Market Perspective, which includes
EWI’s three regional publications:

• The U.S. Elliott Wave Financial Forecast (normally $19/month value)
• The European Elliott Wave Financial Forecast (normally $29/month value)
• The Asian-Pacific Elliott Wave Financial Forecast (normally $31/month value)

• World stock markets (China, Japan, Korea, U.S, France, Britain, Australia and more)
• Global interest rates (Australia, Europe, Japan, U.S.)
• International currency relationships (U.S. Dollar, Euro rates, Aud, Swiss Francs, Japanese Yen and more)
• Metals and Energy (Crude Oil, Gold, Silver, Natural Gas)
• And so much more!

It’s not too late to take advantage of this unique offer! Whether you use Elliott or not,
I highly recommend you stop by the webpage below right now.

Learn how to get your free 120 pages of global analysis here

If you have any questions let me know.

I have kicked it off with two features but you can add more as you see fit.

Go to http://otrader.uservoice.com to have your say.

Any questions let me know.

Download the free Iron Condor Course here.

Later on I will upload a new video that shows how to enter a Iron Condor into OTrader. OTrader can manage any combination of option strategies including the Iron Condor.

If you have questions let me know.

Bill Buchanan

Q. What is you website address?

http://www.rightedgesystems.com

Q. Can you give us a little bit of background about how you got involved in Trading and what led you to become such an expert?

I began trading stocks in 1998.  Things were simpler back then, you placed an order, the stock went to the moon, you sold for a profit.  Obviously, this “strategy” didn’t hold up very well during the subsequent bust.  Having an analytical and programming background, I took to system trading very quickly.

I’m not sure I could call myself, or anyone, an expert.  It is a constant evolution of both technology and psychology.  The game constantly changes.  Ones risk tolerance and objectives evolve too.  I find myself paying a lot more attention to risk than when I initially started down this path.

Q. How long did it take to you to become really become proficient at Trading?

If by proficient, you mean profitable, years.  The main problem was that of self discovery and understand what the pitfalls of trading systems were.  It was very easy for me to fool myself by means of ignoring issues like data problems, system shortcomings, execution feasibility and the host of other things that a backtest just can’t describe.  Unfortunately, I had to learn this the hard way.  That means, I had to lose money.

Q. What markets do you trade? Is there any reason for choosing them?

U.S. equities.  Mostly ease of access and liquidity.

Q. Would you view yourself as a fundamental or a technical trader? If both what percent to give to each?

I’m evolving a little here.  I was purely technical.  Over the last 2 years, I’ve been introducing light fundamentals into the equation.  This is mainly used as a screening parameter or as a means of culling a watchlist.

Q. Are you more a systematic trader or discretionary trader?

Mostly systematic.  RightEdge must generate a signal for me to even entertain the idea of trading.  However, based on risk parameters that I define, I may pass up the trade if I feel I’m too heavy.  A good example of this is financials.  My systems are still generating trades, but I’m well exposed at this point and will decline a trade in that sector for the time being.

Q. Is there a certain instrument that you like trading? I.e. options, shares, warrants, CFD’s, futures, forex?

I am mostly an options trader.  Although I will dabble in stocks from time to time.  The reason why I like options is that I can craft a position that’s in tune with my outlook.  For example, given the recent volatility, I’m much more likely to open a spread position to cap my risk (and decrease my reward).  In less volatile markets, I may be more inclined to accept more risk.

Q. Are there any specific strategies that you trade? Can you provide any details of them?

I’m a band violation / mean reversion trader.  I also use other technical indicators to confirm the strength or weakness of the violation.

Q. Do you or your systems trade every single day?

No.  I may get several signals in a day and run dry for a several days.

Q. How do you react to the winning and losing streaks?

I usually have my risk and reward well defined from the beginning.  The risk I take is acceptable to me upon initiation, so I just let things run their course.  I have good days, weeks, months and bad ones.  Staying detached is always a challenge, but one I’ve spent a lot of time working over the years.  I feel that I’m better than most at this point.

Q. What is the most important part of that discipline? What is your golden rule?

SWAN.  This is an acronym I stole from a local financial planner.  It stands for “Sleep Well At Night”.  If a position has me nervous, I’m out.  No matter how good or bad the P/L is, sleeping well at night is my golden rule for anything.

Q. What charting systems do you use?

RightEdge.  Naturally, I’m biased, but being a system trader for so many years, charts were something we spent a lot of time on.  If I couldn’t use them for real trading, they weren’t going to work for our customers.

Q. What news/broker services do you use?

I don’t trade the news at all.

Q. What portfolio management / trade tracking software do you use?

Interactive Brokers provides me with sufficient portfolio management.  Risk analysis for live trades is done with Excel on an as needed basis.  Risk analysis for backtesting strategies is done with RightEdge.

Q. What kind of risk do you take on a position? When if ever would you increase this risk?

Each position is less than 2% of my overall account value.  In a band violation situation, I may increase the position size up to 2 times.  This is rare and is usually only done on indexes or something that has a very low probability of failure.  Couple this with the fact that it’s always a small percentage of my account value, it allows me not to violate the SWAN rule.

Q. Do you use stop losses and things like that?

No, options really serve as a stop loss.  If I trade a spread, max risk/reward is defined.  I find stop losses severely degrade system performance.

Q. How do you handle your position sizing for each trade?

Percentage of overall account value.

Q. What do you find so good about Trading and the markets?

It’s a thinking man’s game.  It forces a lot of discipline, thinking, analyzing and self discovery.

Q. Do you remember your very first major trade/win?

Yes.  UBID – 1998.  Bought at 40 3/4 (remember when they didn’t quote pennies?), sold at 180 in just a few days.

Q. Can you recall your worst trading day? How did you deal with it?

It was sometime in 2002.  I had put my first heavily curve fitted trading system into production after a single night of backtesting.  How foolish.  I dealt with it by learning my lesson and never making that mistake again.  The hardest part in this isn’t losing the money, it’s usually letting your spouse know that you were an idiot.

Q. What do you consider are the characteristics of a successful trader?

Persistence and perseverance.

Q. If you had one secret to give about Trading, what would it be?

3 things.  Paper trade, paper trade and paper trade again.  There are so many strategies that backtest well and I would say 1% of them actually trade well.  Also, it’s easy to get confused by the instruments that you’re trading.  I run into so many folks who get into a position, the position goes against them and now they want to understand why and how to get out.  This is precisely the wrong time to understand what you’re trading.

I would personally like to thank Bill Buchanan for taking the time to reply and provide some insight into his style of trading.

James Ramsay

Visit www.otrader.com.au for more interviews and a Free 20 trial of our Stock and Option Portfolio management Software