Don't let your emotions overcome your common sense.

- Phil Flynn

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March 29, 2007

Jerry from Ohio asks: Do you recognize the negative effect full moon has on silver prices? Please explain.

Dear Jerry, Are you loony? Come on! What's next? Silver traders howling at the moon! Well Jerry at first glance your question seems to be a bit loony but in all seriousness many traders swear by moon cycles. And despite what your neighbors might think I can assure you that no matter how strange it sounds you are not quite as loony tunes as some would think. Can the cycles of the moon actually affect the market? At first when people hear that question asked they might think you're like a werewolf or something but in all honesty many people believe that the moon actually controls silver and other markets and many swear by it. In fact one client that I have who at times has done very well in the silver market claims the secret to his success comes by watching the bad moon rising. Well maybe not the bad moon, but he watches the full moon and the new moon. He has observed that silver makes its high on the full moon and has a tendency to bottom on the new moon. In fact for years many have theorized and in some cases actually profited from lunar cycles. Not only have they made money in the silver markets, but in other markets as well.

In fact, just last year a study published in The Harvard Business review seemed to suggest that indeed the lunar cycles may actually have an effect on the stock market here in the US and around the globe as well. The study concluded that after studying markets in 25 different countries, lunar cycles do indeed affect returns in the stock market. And of course if the stock market is affected then to some degree silver might be as well.

According to the study in the 15 days surrounding the full moon dates, stock market returns are about half what they are in the 15 days around the new moon.

John Murphy the author of "Technical Analysis of the Futures Markets" is a believer in lunar cycles as well. Mr. Murphy observed that most markets have a tendency to form a trading low about every four weeks. Mr. Murphy uses a 28 day trading cycle that has been suggested by other studies and authors as well. In fact many highly regarded traders and trading systems rely on or at least are in part influenced by the impact of lunar cycles.

Yet as with any market indicator they have their skeptics. Some studies suggest that the correlation between markets and lunar cycles may be a random event and may have just as much success making your trading decisions on who won the Super-Bowl or even perhaps the World Series.

The Truth is that Lunar Cycles like any indicator may work, but not 100% of the time. The reason why these things work may not have to do with the moons magnetism upon the earth but by giving a trader discipline. If a trader waits to put on a position on a certain day and has the confidence to let it ride to a certain day, it allows him to avoid making a lot of emotional mistakes that many traders make when they see the daily market gyrations. The trader will focus more on the trade plan as opposed to being influenced by his constantly changing market equity.

Trading Lunar cycles may be like trading a paper moon but if it provides the plan and the discipline to follow it through you may find that the moonlight becomes you.

Earl from Odessa Florida writes; I started with $10,000 trading gold. I would wait for a trend, and then hop on for a short gain. I got up to $12,600 and then went straight to hell. I lost the whole $12,600. Was my original premise flawed?

Dear Earl, that is a tough question to answer not knowing all the details of how you actually implemented your plan. Obviously in the beginning you got off to a very good start returning almost 26%. Not too bad! But obviously it appears you were hoping to make more. Of course in the short run you were doing well but what risk perimeters did you have set up? Did you take into account how much you were risking versus how much you planed to make? It could be that your system was a winner in the long run but did not have the adequate capital to wait out market corrections. Perhaps it would be good to paper trade your account strategy to see if it works. You may only have to make small adjustments or trade less to make your strategy a successful.

Frank from Greenville New York asks: How do I learn about futures trading? Are there books, web sites etc?

Dear Frank, years ago when I got started in this business it seemed very difficult to get good information on the commodities markets. The most widely read technical analysis books in that day actually were about stock trading as opposed to futures trading. That has changed dramatically. Today there is a plethora of good information available to you. In fact many of the market exchanges offer complimentary guides on trading and specific markets. There are many great books on futures trading that you can find. In Fact our own Websites alaron.com and alaronenergies.com provide research quotes and a place to buy books on the futures markets. The CME.com has very good info as well.

Ray from Connecticut writes: Assuming one has a very good trading plan, followed explicitly, that works exactly the same in any type of market? Dollar for dollar, what futures market is the best vehicle for profits?

That is a very good question. I think over time that changes from market to market. Markets that were booming in the eighties were dead in the nineties and now some of those markets that were dead are coming back again. Of course some of the best returning markets have had the most risk. Percentage wise the oil market has been a solid performer year in and year out and I would say that that would be a good place to start.

Lanin from India asks; which are the technical tools mostly used for wise trading and which should be as follows a) RSI b) MACD c) Candle Stick d) Bollinger bands?

Dear Lanin, to be honest with you this is a very good question and very difficult to answer. I always tell someone the best indicator to use is the one that they will follow. The best indicator for me may not be the best indicator for you. Indicators are only as good as how you use them. They key thing with any indicator is to provide discipline in your trading. If following an indicator gives you the discipline to enter the market and exit the market within specific parameters than that will provide us discipline.

Phil Flynn is Vice President, Energy and General Market Analyst with Alaron Futures and Options and is one of the world's leading energy market analysts. Phil heads the Alaron Energies Futures Brokerage Division offering brokerage services to individual investors, professional traders and institutions. Phil provides up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

Phil and his energy team were one of the first to predict that global crude oil prices would exceed $30/barrel in the year 2000, a correctly predicted market milestone that has highlighted the economic scene in the new millennium. Phil also called the rise of retail gas prices in 2001. Most recently, Phil Flynn has again accurately predicted that global crude oil prices would reach close to $40/barrel ($39.99/barrel) in 2004. Through hundreds of media interviews, Phil Flynn and Alaron Futures and Options have become familiar names in living rooms and boardrooms worldwide. The world's print, broadcast, online media and small businesses have come to rely on Phil's accurate and animated forecasts, analysis, speculative and hedging opportunities.