COPYCATS

Yes the Mustard is off the hotdog as Chick Hearn used to say. Above you see an example from yesterday about the intermarket correlations that are still persisting today. The top chart is the SP 500 and the bottom one is an intraday chart of Corn of all things. I have talked about how unique the market upward move has been the last 9 months and thought showing a real example of this might have an impact. There is absolutely no reason whatsoever that an almost tick by tick relationship should exist between these two markets. I have never seen anything like this.

Some markets have decoupled to some degree in the last couple of months from this goofy relationship, but for the most part it still persists in alot of places it should not. Why am I posting this? One of the things as a trader or investor that you have to keep in mind is the bigger picture. Inter-market influences are important to be aware of when deciding what to do. For the most part I use it do help keep the correlation in my trades as low as possible. For example, if I know everything is basically moving together and I want to risk say 4% on a trade in Corn, I cannot also risk 4% on an SP 500 trade at the same time, unless I am willing to risk 8% on either one individually.

Since they are moving together, it is essentially the same trade, so you cannot let your risk parameters get out of whack. I generally risk about 2% of my account per trade, but in some of my very large accounts I go down to 1%. I am especially aware of market correlations when deciding what to play. I will only generally trade one metal at a time, or one currency etc, unless I want to take half the risk for each and play 2 at once. Really aggressive traders would say that this reduces the amount you will make when you get the swings in price right like I have done recently in so many markets.

This is absolutely true. However, I always protect on the downside. I know so many people who fail to do this, and ultimately they wind up losing all they have won on good runs and more, when they hit a bad period. We all have these drawdowns, it is part of doing this. You have to manage your money in a way that you do not get carried out during drawdowns. For the most part I have kept my drawdown periods under 10% by doing things like this, usually in the 7 or 8% range. This is critical in building your accounts up over time.

Moral of the story - Always be aware of your risk in each trade and what is effecting it and take that into consideration before making any trade or investment.

We have overnight strength again in the indexes so let's see if it sticks today. The bounce is overdue here and it might be starting today. Even the smallest rallies are being sold right now so the first step to get an up retracement needs to be one of these overnight moves holding up. Let's up Barry does not start running his mouth again today on another lame socialist program, he is a market killer that kid.