LET'S CLARIFY A FEW THINGS

When I post Weekly charts talking about setup markets, they are just that setup for a large move. This does not mean they are entries at the market at the time I post these. Often markets that are setup on weekly charts can continue moving in their current direction for awhile before the fundamentals take charge. This is why you cannot trade fundamentals on a short term basis. It is and has always been true.

My weekend post covered Gold and the Dollar. I mentioned a gap technique which I was somewhat vague about. This was intentional, I will not give up all my trade secrets that have taken years to develop for free over the internet. Readers of this will just have to accept that. I give up quite a bit of very valuable information for free already, way more than I should. That Gap technique is simply a trend indentification technique which gives us a side of the market to trade. In the case of the Dollar Index, I labeled 3 spots where by that technique the trend had changed. This did not mean it was a daily buy signal and point #1 and #3. It is actually quite the opposite. Once that gap shows up we are looking then for a retracement. As a result we actually want the market to move against the new trend to setup an entry.

Point #2 on that chart is a perfect example of that. Once we got the gap on the downside we got a large runup that actually made a new high. Most people were fooled there thinking a new high confirmed the bull move and were looking at the long side. We knew from this technique that was likely to be a false breakout and it should be shorted. I did short this market up there and made some nice money on that downmove. I did not divulge how the lines were created and will not. I am sure there are plenty of ways of doing this same technique with other line formulations, so I will leave that up to you to create your own.

By the same logic we are looking to buy a dip now in the dollar, not at the market. We need a high probability daily pattern now to tie in to the weekly setup. Maybe we won't get it. This is not a perfect world, and trading is impossible to do perfectly. However, combining weekly fundamentals with daily setups is the highest probability way to trade that I know of, and it is what I do for the most part. I do take some other trades for different reasons, but the biggest wins almost always come off this combination. Gold also is setup fundamentally now, but is nowhere near a daily sell signal. I don't want any emails telling me I was wrong on these unless I put up daily trades that show entries that fail. Of course at that point it would be obvious I was wrong. I did not say to sell GOLD at the market, I merely stated my reasons for asserting that it is setup for a large decline. It may not happen, nobody knows the future including me. If we just sail along upward with no sell setups that just tells us that the fundamentals have yet to take hold. If they happen to change I will cover that but it will take months for this type of situation to change if not longer.

One last thing to keep in mind about GOLD specifically. The individual investor and not large money, has been driving this market for awhile now. Maybe that can continue in perpetuity. It would be a historic anamoly, but we have seen a few of those in the last 12 months so we cannot discount the possibility of it happening. However, I will never in my life base trading or investment decision on requiring a once in a lifetime anamoly to persist for the trade to be profitable. As in horse racing, the favorite does not always win, but that is the way to bet over a large sample size.

Also, I did just make quite a bit of money on the long side of GOLD so I am not just someone who gets glued to one side of the market. I trade where I think the best odds for success are, and that is in both directions and will continue to be.

Next is a trade that ties in to what I have been explaining above. This is one where I missed the boat. I had a weekly setup for a sell in Natural Gas via that Gap strategy, I was then looking for a daily entry. I do not like selling below the lows of reversal bars as the entry on this chart requires. I do it in some instances, but in this case the stop was just too big to make it make sense. Unfortunately, the trade became a huge win, but that is the way it goes sometimes. If I have a greater than 4k stop per contract in a trade I generally do not play those. Sometimes we get a weekly setup and just don't get the right daily setup, it is not a perfect world.