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Saturday, June 26, 2010
Here is the Copper trade I am long. I mentioned in here recently this market was a bullish setup and we have risen nicely. At this point I am trailing stops and hoping to get into 315 or even the 325 area as a profit target. In the mean time I will just trail a stop and see what happens.
Thursday, June 24, 2010
Why is it the proper play to fade bullish sentiment? The simple reason is that when you have a situation like what we have above in Live Cattle at the recent top, everyone ought there who could buy had already done so. Where was the buying going to come from to propel this further upward? Prices fall due to a lack of buying, not from aggressive selling. The aggressive selling during mass panics can accelerate the moves, but it does not start them. Here is one very current example of what happens when the majority of people agree on something, Barry got elected. We all can see now how that worked out, the single biggest disaster in the history of the world.
Another example that is taking place in my life, is the miracle recovery of my one dog from cancer due to my supplements I gave him. The consensus in the veterinary community and I have had some of the top vets in the country involved in this, was the was nothing else that could be done. He was terminal. In fact had I been a doctor, he would not be here now because I would have been trapped in the paradigm of what the vast majority feels is the proper treatment of this disease. I would have not given him what saved him, it would not even have been considered. Now the "majority" want to know how in the world I pulled this off! They want to do Xrays blah blah blah. I have told them no. There will be a time if this continues where the world can benefit from this as it appears to be a landmark case. Until then I will let the "majority" shake their heads in disbelief. It is already proven that what I did is a quality of life improver with no side effects. How far beyond that it is still is yet to be determined. It certainly appears to be a possible cure but I think it is too soon to tell. One thing I am not going to do is let this dumbkopfs put him through a bunch of tests stessing him out. The facts speak for themselves.
This reminds me of all the experts paraded out everyday, none of whom predicted the stock or real estate crashes. Now they are predict a recovery. Hmm...... gives you something to think about doesn't it?
It is always cute to be a wise ass at parties and have contrarian views on things, but you better be prepared for what will follow. I will never forget back in 2006 telling everyone wherever I went the housing market was going to crash and it is the reason why I sold my Newport Coast Mc Mansion and cashed in. I went back often to parties in the old hood, and will never forget my one neighbor telling me I was nuts and that he was making 35% a year in retail real estate. Of course I told him it would not last, and obviously he has been wiped out by now I am sure. He was piling alot of money into that. I think his scenario specifically was a ponzi scheme of some type due to it's "guarantee" of returns. However, it does not change a thing, the basic concept is we want to fade the herds at extremes. Of course in this prior example that was a local realtor running that cute little, "they are not making more land" skit at me. I was not a professional and therefore knew not what I spoke of. Oh really? She is no longer in the Real Estate business today.
We do not want to fade the herd in the middle
That is the $64,000 question, how do we know when we are in the middle? Although we can never know for sure, the best way to view sentiment is comparing it to prior activity in it. For example just because we have a bullish stance by a large majority, we do not just go out right away and sell. It is important to compare it to what happened the last time sentiment reached current levels. Also, we want to make sure we are not comparing it to such a short prior history that it is just a wiggle in the data. Generally I use 6 month and 3 year lookbacks. This gives me enough of a time element that I am not getting trapped looking at what just might be an acceleration in the very near term in consensus. Short term changes will often accelerate trends, so you do not want to jump in front of too many of those.
In the above case, that bullishness did not represent a historic high, but it did represent a several month high, and the market was also in a weekly downtrend, so it was a nice combination of trend and fundamentals. I suggest you research this and find your own patterns, I have given you the basic premise here. The above example in real estate is also an example of the power of a trend. We did have excessive bullishness at historic levels for a long time before things came crashing down. However, be assured of one thing, when everyone is that bullish on anything it will ultimately build a bubble that will be followed by a crash. It is just a matter of time. Gold Bulls are the next victim, the question is just when not if. It could be a year, 2 years, I have no idea. I do know though that when that crash happens it will be talked about for decades, and you will want to fade that sentiment.
Wednesday, June 23, 2010
Here we have Gold, a market I shorted this morning. You can see we have a triple divergence in the Trend Oscillator. I think Larry Williams students are familiar with what this is. We also have a very clear trendline that was broken when todays outside day was formed. I went short at that point. This market is clearly in a strong uptrend, of that there is no question. We do have some fundamental things in the COT report saying a turn could be coming downward, but not enough to just run out and sell. Maybe this is just another pullback in an uptrend, but I want to be positioned in case it is more. Just another trade basically, as per the title of today's post.
Here is one thing I know for sure, my opinion is not worth jack! This is not a trade based on an opinion, it is based on a triple divergence, that is occuring at a time when we also have commerical selling and small speculator buying. As a result, it is a trade to do.
I sure wish there was a Barry Index that I could short. I am sure there would be a sell pattern in any indicator tracking this blockhead. Now he has his top general essentially telling us what we already know, he is an imbecile. He is also suing a state that he is at the same time blackmailing basically. I would bet the farm on the shortside of the Barry Index. However, one thing I have just recently become convinced of is this. This country will survive his one term and eventually get back on it's feet. He is ruining the world and trying to pick up the pace before November. However, if my dog can beat bone cancer, we can beat whatever terrible things he puts in place, as long as we get him out after one term. I did not think this before, and if he does get a second term, at age 50 I will not live to see all the bad things he is doing get fixed.
Message, vote for Repubs in November just to try and nuetralize this idiot.
Next is the Cattle trade that I had great hopes for that poofed yesterday.
You can see where I entered, and where I got stopped out here. This was a gain of 50 points, so basically a lousy trade. It is still bullish by the trend oscillator, so I might buy again tommorrow if we close down today. It is too soon to tell on that. I had moved up my stop more aggressively after the big gap up day's high was exceeded the next day. When that happens, the low of that gap day should not be breached the next day if the market is really strong. I had my stop there with the logic being that if it were taken that day, the strength of this market was in question. It was taken, so that is that as they say. We still have uptrends in the oscillators and a very bullish COT picture here, so I am looking for another long entry to setup.
Frank to address your question on open interest, I am not sure why we have a difference. As far as I can tell what I posted there in that Copper trade was correct. It does not matter, that is not material to the setup in my view anyway. Genesis has some issues going in at the moment so maybe my data is wrong.
Monday, June 21, 2010
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!
Saturday, June 19, 2010
As I watched my only current futures trade go south on me yesterday, I realized that this presents a unique opportunity. I am currently in the worst losing streak of my 20+ year career in terms of just raw wins and losses. However, many of these trades are very small losses. This is so important, keep your losses small. This is likely to be the worst losing streak I will ever have as a trader, so I am actually excited that I have not lost a devastating amount. I typically trade at about a 65% level of accuracy. This has been consistent for awhile now. At this point when I exit this trade on Monday for a small loss I will have 9 consecutive losses, a statistical anomaly with a winning percentage that high.These are the types of streaks that wipe out ultra aggressive traders who do not have tight risk control. This is a case study on how you HAVE to manage your money.
The unique opportunity is sharing this openly in a blog and how I am handling it. In addition, what I am doing to try and break out of this streak.
First, you have to remain confident in your approach. It is so easy to be confident when things are going great, it is entirely another to be so during a stretch like this.
Second, review every trade you do. I print them all out and keep them in folders, so I can always go back and review them post mortem. At times this is very helpful. I have found a few things I could have and should have done differently here, so that would have saved me some anguish here.
Third, make sure your method is sound. This obviously ties into point #1. It is one thing to be confident, but your techniques must be sound. Review what you are doing to make sure how you are approaching things is sound. If your approach is flawed, no amount of confidence will make it successful.
Four, the glass is half full. Assuming you have had good stretches, look back on them and feel good about what you have accomplished. Drawdowns are part of this, so that is something that must be accepted. In spite of this 9 loss streak, the drawdown is still under 8% which is fantastic.
With all that being said, lets look at what caused this on my part. I mentioned I am trying to change to hold things longer. Many of these trades during this streak were wins had I exited them in 2 or 3 days. The wins would have been small, and that is why I have chosen to use trailing stops with them in an attempt to capture larger gains.
If we look at that Cattle trade above, you can see there were 3 straight up closes after I entered. I typically exited trades after 3 wins when against the trend in the past. This would have been a 5k profit in this case. I have chosen to use a 3 bar trailing stop, which is why this trade will be a small loss. I was trying for a target of more than double where we went to, so it was not even close to getting there. We are setting up another buy opp, so it is possible I will get stopped and re-enter this the very next day. This does not mean I should move my current stop down. That is again a mistake people often make, hanging on to something too long. This is how losses get out of hand. You establish your parameters for how you will manage a trade prior to going into it. Then you follow those rules period. My parameters were to go for a particular target, and use a 3 bar trailing stop, so that is what I will do.
I am sure some readers who just happen by here will leave now that they see I have admitted to having this bad streak. Good riddance. So many are just looking for the short cut, the holy grail. They think they can make millions off 5k. This has been done, but rarely, and you will not learn how to do that here. The whole purpose of this blog is educational, an attempt to help others from what I go through day in day out trading. This current losing streak is a reality of what can happen, people need to be aware of this aspect of the business.
Sorry for the lack of market analysis, it is my blog so I get to determine what I talk about. I do not see anything setup so strongly that I am looking for any reversals of this weeks action. I think we will continue upward in most of these markets this coming week.
Have a great weekend
Friday, June 18, 2010
Thursday, June 17, 2010
The most important thing for me to stress to people just getting started is this. When you take a loss or series of losses, do not get that mindset that "I have to get this back fast." This has caused more people to get blown out than anything I know of. I have the utmost respect for the markets, so I tend to go the other way after losing. I like to walk away for a few days or even a week or two. The markets will be there tommorrow. If I am losing it is my fault and I am out of sync with what is happening. My dad loves to blame the referees for every loss the teams he roots for have. I do not share that blame someone else mentality. I just have to look in the mirror for who is to blame. I am out of sync right now and until I can get back in sync, I am going to be very careful.
Below is an example of a trade I just got stopped out in today trying for a larger gain, BONDS. You can see the arrow where I entered, and the one where I got stopped out today.