CONUNDRUM

Since the nature of this blog is essentially an inner monologue by yours truly along with some educational material thrown in, you get to live through this past month with me. This was one of the worst trading months I have had in quite some time. I started off with a huge profit and gradually got it whittled away almost back to a break even point. Of course a brokerage error accounted for a large portion of this, but at the end of the day the balance barely moved. I can blame some things on them, but short of a lawsuit or arbitration, at the moment that money is gone.

As hard as it is to do for me when I fail at something to review my errors right away, it is a must do drill. Face your demons immediately or let them later get you at a less opportune time. One of the things I constantly try to do is trail stops on trades, giving them a chance to produce large wins. I know I will select my share of clunkers, so I have to get large gains to offset them. If I scalp in and out just one day at a time, I generally can make some money doing that, but not enough to really get me anywhere. This leads to something I am now going to do moving forward, that I never would have done before.

We are seeing a interesting occurence around holidays, where due to the electronic markets now we get trading sessions on holidays that are lightly traded. There is tendency to get large moves during these periods either that day or the day after. I have now been severely burned by large moves on both that day and the day after that showed large profits for me, that evaporated the next trading day. Now I will view these as one day trades and take the money on them if it is there. If they go on to larger moves so be it I will miss them. I had such a large swing in this during February that it literally ruined my month and more importantly heavily impacted my thinking on other trades I entered. I could not get over in my mind a 24k swing in one day from gain if exited, to loss when the moves were reversed the next day. Since I have now seen this on the last 2 holidays, that is enough for me to make a rule. Admittedly this is a small sample size but between those 2 days alone it was a 50k difference in my account balances, enough said.

Discretionary trading is so tricky, I call it Caddyshack Trading. It just reminds me at times of the scene in Caddyshack where the caddies cut loose at the pool. It is just so chaotic and random at times that it is easy to get lost in how you are making your decisions. I have a basic platform which readers should have a feel for by now, as to how I decide where and what I am trading. The art of trading is using individual tools to enter and exit when the conditions are right to make a trade. At times I can do no wrong, others no right. This is why it is imperative to get large wins when they are available. That being said, lets look at some markets where large moves should be coming.

First, the Dollar Index/Euro Currency. Due to weighting, these markets are essentially inverse of one another so basically the same trade from opposite sides.

Once again the picture has not changed here, huge commercial selling and conversely big small spec buying. Also the open interest is rising while commercial longs are decreasing. This is a good setup for a decline. I shorted this market Friday with a tight stop. We could break up and out of here and do a moonshot like GOLD did before it made it's peak from a similar situation.

Next is the Euro which is basically the inverse of this. The news is full of stories about the demise of the EU and how that will decimate their currency. That may be true, but it also could be a headline we look back at that told us capitulation on this selloff had happened. I do not know. I went long this market yesterday also, and already have enough gain to lock the stop at breakeven and see if it goes onward. It also is in a downtrend, so a rally actually would setup a shorting opportunity also at the red line.

Again you see essentially the reverse of the dollar index here. Record commercial buying and small spec selling. It is also occuring right at a time when the seasonal low typically occurs. A rally should follow here.

Next the agricultural markets have a couple of things setup pretty well.

The same picture here in Soybeans, big commercial buying and large spec selling. This should lead to an upmove however, we are short term in a sell zone based on a retracement in a downtrend type of setup. We need to break out above the lines here.

Next Live Cattle.

Same picture here, huge commercial shorts, but one difference. You also see the large small speculator short position. In the meat markets, small specs are basically the commercials here, so they should dance together. No questions on that please, study for yourself as to why that is the case. The bottom line is that this is a very bearish setup right at a time when the seasonal high is also due. The daily chart does not have a sell here yet but may soon.

These are just a few things I am pointing out. The one ironic twist to all of this is that the stock market appears to be setting up a sell on a larger scale. Since we have seen the tight correlations across the board, some of these things do not jive. That is the title of the post, Conundrum. What this likely means is that some of these setups will not be correct. I do not believe we can have a rally in the Euro and dollar decline, if we have a stock market decline. That would drive down the Euro and the dollar upward. This is why these are just setups and the actual trades need to be made off daily charts. Some of these setup markets will never setup daily trades in the above directions, so that is how we will know. Trade the daily charts and the signals there, but look for the bigger moves to come in the direction of larger scale setups.