Here is a market that is setup very nicely, and one in which I took a position last night on the long side. Frequent readers know I have railed on the COT report recently as to it's ineffectiveness. However, at the same time I have mentioned there are certain circumstances where it can be very helpful still. This is one of those. Look at the very sharp open interest decline, you do not often see this. That is the blue line on the middle graph here. In general lower levels of open interest are bullish and higher levels are bearish, but there are 48 asterisks to that comment, which I will not get into here. You can see though that Open Interest was at a low at the price low on the chart, and a high level at the high. We have now spiked way below the level of Open Interest that was present at the low, yet price is substantially higher. This is very bullish.
Also, if you look at the red line which represents commercial buying, you can see a sharp increase taking place. This means that a very high percentage of Open Interest is commercial long positions, this is also very bullish. The third part of this is the green line, which it Small Speculator activity. This level is not at an extreme, which would have been ideal, but it is at a level that indicates low buying interest relative to where it has been in the last 6 months. This is also bullish.
Next, if we look at the seasonal graph at the very bottom, you see a tendency for a price rally for about the next month. If you put all of this together, we do have a market that is fundamentally setup to rally. This does not mean you just run out and buy, but what it does mean is that you definitely need to take any long setups that come along, and hold them for larger than normal targets. When you have the wind at your back, and then you get short term price structure to support it, you really have the best of both worlds. It is setups like this, and the potential for larger than normal gains, that I have been changing my trading style somewhat to attempt to capture.
The problem with day trading, and also very short term trading ( just a couple of days hold time ), is that you have to do so many good trades to ever get anywhere. The pressure is on day in day out, month in month out to make a ton of accurate decisions. To give a baseball analogy, you have to hit .300 every year to get consistent money. Although there are exceptions, there are very few day traders that make huge money. What there is alot of is representations of people as to how much they make. You rarely see proof via account statements of those claims.
The really big money trading is made in capturing large moves, not wiggles. It was my decision that in order to go from making in the hundreds of thousands a year to millions, I had to catch larger moves. I am willing to experience some short term pain to get this done. I from time to time get to see account statements of top traders that I know, and the one thing that jumps out at me when I see them, is the large credits that show up. Often I see 50k, 90k, 60k wins, then losses of 8k, 15k, 6k etc.. This has made me realize that when people look at my statements in contrast they see a higher win percentage, but more like 22k, 15k on the wins. That has to change for me to get where I want to get.
We are being blessed with quite a bit of volatility right now, which for traders presents the opportunity of a lifetime. It is not time to pull back the reins, it is time to move forward and grab the money that is available. As traders we dream of price moves like what we get now, so go get some of it!