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merry xmas and a very profitable new year to all

Random%20checks_m.xlsx

If you've ever wondered why your entry seems to come under pressure most of the time, regardless of whether you take a breakout entry or a pullback?

Well, having been in a similar position and scratching my head for four years I decided to finally look and consider a comment that was made to me at the start. That market movement is random. I wouldn't accept it at first, it couldn't be as I could see many trades that would have been successful in the historic charts (1st mistake, dont just look for success but look for where you would have failed).

I've spent the last six months or so looking at how the charts form using various bits of software that I've written, one of which looks at the instances of a consecutive number of bars forming in the same direction and then from that working out the probablity of the next bar being in the same direction as its previous. The reason for choosing this is that the decisons that we make on selecting an entry is where to put it, in which direction and what is the target. I looked at how bars developed over four different time-frames on Euro/$ and compared the results to a random generated pattern. I looked at the whole data available to me on my charts and also at a specific period from top to bottom of a 500 pip down move.

The results are pretty clear. The bars develop in the same way as the random pattern, even in the down move (which did surprised me). The chance of the next bar following in the same direction is about 50/50.

So why am I doing this? Well I'm hoping that any newbie looking for answers as to why they're struggling can see the true nature of the markets and dont make the same mistake as me by trying to ignor the obvious.

All of the major stock indexes in Europe and the United States has been weak ever since Ben Bernanke announced his QE-3 program on September 13, 2012. It seems that the QE-3 announcement by the central bank was a "sell the news" event and stock markets have been in correction mode ever since. The day after the QE-3 program was announced, the S&P 500 Index traded as high as $1474.51 on that session before topping out. This past week, the S&P 500 Index closed at $1379.85 declining by nearly 100.0 points in less than two months. 

At this time, many traders and investors can argue that the decline in the S&P 500 index is just a natural and healthy correction from an overbought condition in September 2012. After all, the S&P 500 Index is down by only 7.0 percent at the moment. This correction is certainly not the end of the world, yet. We may have to wait for December before that happens. In any case, there are a few leading stocks that should be followed closely to see if this correction can turn into something more severe. Since this is now a European financial debt crisis the leading European banks must be watched very closely.

UBS AG (NYSE:UBS) is one of the leading European financial institutions in the world. This stock has held up very well as of late. Over the past three trading sessions the stock has pulled back from a 14-month high. Should this stocks begin to fall sharply it would be an indication that the economic conditions have worsened in the near term and this recent decline in the stock market is more than a natural correction. Traders can watch for near term support around the $14.25, $13.47, and $12.55 levels.

Credit Suisse Group Inc and Deutsche Bank AG (NYSE:DB) are two other leading European financial institutions that should be watched closely. Both of these stocks will tell us a lot in the near term when it comes to this current financial crisis. Should these stocks begin to decline sharply it is a sign that the central bankers are losing control of this inflation induced recovery. Some other leading European financial equities that traders may want to follow include the Ishares MSCI Europe Financials Sector Index Fund (NASDAQ:EUFN), and Banco Santander, S.A. (ADR) (NYSE:SAN).