Worldwide Trading- Precious Metals, Currencies and Oil

1. Worldwide Trading- Precious Metals, Currencies and Oil Steve Houck SOHO Capital Management, LLC

2. Introduction • My trading career • 2 years of trading learning the ropes • Dropped equities cold turkey • The last 7K • Why I chose these markets • Any Takers?

3. The Markets • The Currencies • Euro, Yen, Pound, Franc, Aussie, Loon & Kiwi • The Metals • Precious • Gold & Silver • PGM Group • Platinum & Palladium • Industrial • Copper • Uranium • The 500 lb Gorilla • Crude Oil • One trade for the entire month • New Markets to follow

4. Resources • Broker • Newsletters • Books • Software • Yourself • Different Approach • Technical and Fundamental analysis • Only in Futures

5. Broker • Pit, Electronic and phone 24hrs day • i.e. Currencies are primarily on Globex with Pit/Phone as a backup • Fast Reporting of Fills • Ability to work with Customer • NYMEX/COMEX Access Software

6. Open E Cry • www.openecry.com • 800-920-5808 • $13 pit contracts for Metals and Crude • $6.75 electronic Currencies

7. Newsletters- Pay Subscriptions • Steve Seville's Speculative Investor • www.speculative-investor.com • Bill Murphy’s Le Metropole Café • www.lemetropolecafe.com • Rick Ackerman’s Rick’s Picks • www.rickackerman.com • Aden Sisters Aden Forecast • www.adenforecast.com • Richard Russell’s Dow Theory Letters • www.dowtheoryletters.com • James Dines’ The Dines Letter • www.dinesletter.com • David Morgan’s Silver Investor • www.silver-investor.com • Peter Carlin’s The Oil Trader • www.theoiltrader.com • GOLD Stock Newsletters- • Clive Maund www.clivemaund.com

8. Newsletters- Free • John Mauldin’s Weekly Letter • www.2000wave.com • Chuck Butlers Daily Pfennig • www.everbank.com • Market Wise Black Box • www.marketwise.com • Jason Hommel’s Silver Stock Report • www.goldismoney.com • www.goldseek.com • www.321gold.com • www.kitco.com • www.sharelynx.com • I always read Cliff Droke, Captain Hook, Julian Phillips & Gary North

9. Books • Trading in the Zone • Mark Douglas • Traders Secrets and Winning Edge Series • Adrienne Toghraie • Financial Freedom through Electronic Daytrading • Van Tharp and Brian June • The Trading Game (??) • Ryan Jones • CandlePower • Greg Morris • The Oil Factor • Stephen Leeb • Gold Warriors: America’s Secret Recovery of Yamashita’s Gold • Sterling Seagrave & Peggy Seagrave

10. Software • eSignal • Has the most worldwide Exchanges • Fast Reliable Data • Numerous 3rd party software programs written for eSignal data • Right click on Quote Window • Autolist • Detail Window • Continuous contract (#F) • The new QuoTrek • For Smartphones, Palm and Blackberry

11. The Most Important Resource- Yourself! • Psychology is the key hands down • Have to cover the basic’s to give yourself confidence. What you learn tonight is only 20% of the real issue • Then take it to the next level by analyzing yourself- how you trade and react to the market • Don’t chase systems, hot tips and seminars • You have what it takes inside! You are only avoiding the “real issue” • Over the past 15 years the successful traders are usually: • Simple Traders • Trade Futures/Commodities • Specialize on a certain Market

12. My Approach • Read, Read and then Read some more • Pay attention to what is going on in the world- not just my neighborhood! • Develop a macro picture of the World Economy for my base • Use this base and apply it to the technicals- the charts • Draw trend lines on all time frames and look for opportunities. • Keep a daily Journal • Constantly be aware of my mindset- In trading live in the here and now. • Learn to have patience and conviction with my trades

13. Need to Know • First Notice Day • The FIRST day that a buyer of a futures contract can be called upon to take delivery. Pay attention to this otherwise you may be assigned the number of contracts you are long • Contract Rolling • Try to roll ahead to the next month one week before first notice day. Otherwise, you will pay an unnecessary premium. • Margin Requirements • Know the required margin and keep current • Silver was raised three times from $1000 to recently $3375 over a 10 week period.

14. The CME Currencies • CME vs. FOREX • Powerful Leverage…Put up $2400 and control $104,800 in one Euro FX contract. Isn’t 43:1 enough leverage? • FOREX says no commissions, but you pay the spread (3-5 pips @ $10 pip= $40 average). CME is $6.75 RT • FOREX price can be an issue depending on which broker you use- they don’t all interact with each other, therefore your price may be different from mine. With CME the price is posted for everyone around the world on GLOBEX. • Here today, Gone tomorrow!

15. Currency Basics • All trade from 4pm to the next day at 3pm on Globex. (Only closed for 1 hr from 3-4pm) • USD trades from 4pm until the next day at 1pm. That 3 hour period is usually pretty quiet in the currencies and sometimes the metals • Open at 5pm Sunday night • Most trade with 1 tick= $12.50, 100 “ticks” in a cent. Therefore a 1 cent move in the Euro= $1250. • Currencies can really trend- use this to your advantage • Always keep in mind major news events and Central Bank Meetings • All currencies are watched against the Dollar index. (Use $DXC on eSignal)

16. US Dollar Index Components

17. USD- Where it all starts • Trades on the NYBOT • Symbol is DX • If DX is up other currencies go down (Yen sometimes does not) • Best traded against the Euro • Since dollar found a bid in January, stock market has been making a top. If Dollar breaks it’s major down trend line, the SP’s should fall to 930 area, gold and bonds will fall, and the Euro will be crushed. First support is $1.15 area with a slight possibility of $1.04.

24. Euro • Symbol= 6E M4, 1 tick= $12.50, $1250 cent • Int Margin=$3240, Maint= $2400 • Price Format= 120790 (USD per Euro) • Euro has the best liquidity • The Euro is a mirror image of DX, and will move almost twice as much • Read Daily Pfennig everyday (or other Currency/FOREX News). Pay attention to ECB meetings • Trend lines, Trend lines!

25. Basic Chart Setup For All Markets • Simple 50 and 200MA • Donchian 20 and 200 so you always know where horizontal support/resistance is • Work off of 15, 60, 120, 270, D, W M • I am trying to catch a major trend and/or spot a trend reversal • Draw trend lines on all timeframes and look for a break. I like three points, but will go with two many times. Once you start getting 4 and 5 hits you should start to see “edging” • If you have an edging trend line your “good as gold”. Remember what I said about simple! • To enter I like to see a break on a longer time frame • If trend line is drawn correctly, you should see a “BAC” at the break

26. Euro Trend Line Break Trade • When the break happens it moves! Use a buy/sell stop limit to enter or enter early if you’re at horizontal support/resistance and another converging trend line. • Don’t try to fight the trend. Either your already in the play and using the trend to keep you in, or be patient and wait for a true break. (The break candle should not come back up to the trend line!) • When using buy/sell stops on Euro you need your stop limit set .0025 away from your stop • If it looks like it’s going to break- check the time. Many breaks occur around 11pm, 1am, 3am, 6:30am or 8am. • Even if you miss the original candle break you can still get in because currencies trend! • Stay in the trade as long as possible. Draw trend lines and look for a break to take you out

30. Euro “Extreme” Trade • DX and Euro on same chart • 15 or 60 or 270min • Looking for Topping and Bottoming Tails + Volume Spike (Shooting Star and Hammer) • Looking for a push, then immediate pull back, through previous horizontal support/resistance (Donchian 200) • Don’t hesitate as it pulls back fast • This is the last push on a long trend- an exhaustion move • Generally, these occur in the afternoon/evening

34. Screen Shot of Extreme Trade Chart

35. Japanese Yen • Symbol= 6J M4, 1 tick= $12.50 • Int Margin=$2228, Maint= $1650 • Price Format= 9156 (USD per Yen) • The Yen (and other Asian Currencies like the Thai Baht, and Chinese Renminbi), should be the strongest in the next year • The Yen mainly trades the inverse of the DX, but NOT ALWAYS because of intervention and traders • My main Yen trade is probably gone- The JCB Intervention stopped April 1, 2004 • Once DX turns back down, this should be an excellent swing trade long

36. British Pound • Symbol= 6B M4, 1 tick= $6.25 • Int Margin=$2295, Maint= $1700 • Price Format= 17928 (USD per Pound) • Has had a bid under it due to possible rate hikes. Should be the second strongest in the next year (Rate hike just announced today) • The Pound mainly trades the inverse of the DX

37. Swiss Franc • Symbol= 6S M4, 1 tick= $12.50 • Int Margin=$2228, Maint= $1650 • Price Format= .7830 (USD per Franc) • The “safety” currency, although gold has become it’s equal • The Franc trades the inverse of the DX, and tracks the Euro almost bar to bar

38. Australian Dollar • Symbol= 6A M4, 1 tick= $10.00 • Int Margin=$1688, Maint= $1250 • Price Format= 7281 (USD per AD) • One of the Commodity Currencies (along with the Loon and Kiwi) • Has had a bid under it due to possible rate hikes. • The Aussie trades the inverse of the DX and it follows the Euro • The Aussie is great as a backup if you miss a Euro move- you may still have 10-30 seconds to enter. However, not as liquid as Euro

39. Canadian Dollar • Symbol= 6C M4, 1 tick= $10.00 • Int Margin=$1350, Maint= $1000 • Price Format= 7281 (USD per AD) • One of the Commodity Currencies (along with the Aussie and Kiwi) • Has been very heavy due to possible rate cuts • The Loon trades the inverse of the DX and it follows the Euro and the Aussie

40. New Zealand Dollar • Symbol= 6N M4, 1 tick= $10.00 • Int Margin=$1553, Maint= $1150 • Price Format= 6295 (USD per AD) • One of the Commodity Currencies (along with the Aussie and Loon) • Has had a bid under it due to possible rate hikes • The Kiwi trades the inverse of the DX and it follows the Euro and the Aussie • The Kiwi is very illiquid, but sometimes it gives you a full 1-2 minutes to catch a missed play in the Euro or Aussie • Best used as a swing trade

41. Currencies Summery • Buffett’s 12 billion can’t be all wrong • Slippage- early placement of entry and exit orders is key • Think in terms of safety- The safest currencies are Kiwi, Loon and Franc with the Aussie a distant 4th • Yen tanked temporarily on news of three Japanese hostages taken in Iraq • Terrorists want to hit our allies- UK, Spain, Italy, Australia and to a lesser extent Japan and Canada

43. The Metals

44. NYMEX Exchange • NYMEX Division- Platinum & Palladium • $63 monthly exchange fee • COMEX Division- Gold, Silver & Copper • $63 monthly exchange fee • Hours (for all metals) • Pit Session 6:20am to 11:30am • Access Session 1:15pm to 6:00am • Sunday night trading starts at 5pm

45. Gold • Symbol= GC M4, 1 tick= $10.00 • Int Margin=$2025, Maint= $1500 • Price Format= 3933 • $10 Price move = $1000/contract • Average Volume= 60K • Uses • Jewelry • Electronics • Monetary

46. Gold- Monthly

47. Gold- Fundamentals • The Central Banks • Don’t believe gold has a place in today’s fiat world • Doesn’t earn interest • So, lease their gold to bullion banks for 1% per annum • Bullion Banks sell the gold and invest in other assets • Since gold is leased and not “sold” CB still report it on the books • CB will be in trouble when public finds out all the gold is gone • Central Banks announce Gold sales? • Rothschild's give up Gold Fix • Since 1919, why stop now? Because gold is not going down and the leasing business is over • Negative Real Rates are the DX are key for Gold • Inflation is higher than interest rates • The run in late 70’s was the greatest bull market • NASDAQ would had to reach 8000 to equal gold

48. Gold- Trading Notes • The $6 Rule • Sell offs at the close of the Pit session • Beware of Friday sell offs • I use mental stops, Access no stops available • Once my stop is hit analyze market- DX, Euro, Bonds • Watch DX , Bonds & Euro for confirmation • Day Session • Trend line plays • Gold & Silver lead and lag- if one moves the other will follow • Place buy orders below Access close if market up or sideways • Access Session • Use “Detail Window” to see bid and offer • Bailout Play • Transition Gap

50. Gold- 15 Min Trend Line Beginnings