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Tuesday, November 20, 2007

Here is the summary of the Gold trade we just exited in the trading service. The initial entry, and an add on entry above it are marked with horizontal red lines and an S for each of them. Our exit was a bit lucky in that we exited on a limit right before the market zoomed up today. The add on entry was not in the service, that was something I did in my own trading only. Was this luck?



Keep in mind that although the fundamentals the way I look at them are bearish, but we had reached a short term oversold area, in what is still a long term uptrend, so it was prudent to take some profits. It may not look like much due to the scaling of this chart, but this was a profit of $3270/contract on the initial, and $4270 on the add on, so a substantial gain overall.



The big picture plan here is to wait for a pullback and re-enter the short side if the fundamentals are still bearish at the time it occurs, then try and ride down what could be a very big move. It is possible that pullback does not occur, but based on the relative valuation compared to the dollar at the moment, I think it will.

2 comments:

grozzy said...

Hi Chris,
I enjoy your posts. One question i have is about your reliance on COT data. Why is this so important to you?

First i would think that if the commercials are net long, that this would be bearish for the market because 1) they are hedging (if they are hedged the other position must be short) and 2) if the majority of the commerials are already long then there are fewer entities left that are not already long to push the market higher. Generally in the market a large long or short position can be a contrarian indicator.

The other problem i see with the COT data is that total short positions must equal total long positions. So in reality the overall data is net neutral. Why commercials more or less important than non-commercials.

Once again Chris thank you for your posts. They are very enlightening.
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Chris Johnston said...

Unfortunately, it is far beyond the realm of this forum to fully explain why I watch the commercials so closely. It is a result of 20+ years of trading and studying the markets that has led me to this conclusion. I would suggest viewing some charts with the commercials positions on them and it becomes obvious that they are a very good indicator to follow.

Thanks for the participation

Being a contrarian to the largest players in each market would be very unwise in my view. However, being a contrarian to the small specs and large specs is very profitable. They do hedge heavily, which makes watching what they do something that requires some studying. It is the distribution of the positions that matters.

We just took a nice chunk of $$ out of the GOLD market by watching the comms and what they were doing. I would suggest studying it further if you have interest, and see if it is of any value to you in your trading.

Generally if they are net long that would mean they have no fear of a price drop against their core holdings and that is time for individual speculators to load the boat on the long side. Timing is another matter as this is a tool, not a stand alone system.