Thursday, March 31, 2011


One of the things that I maintain you get in this blog that you do not get elsewhere is reality. I talk about the good the bad and the ugly, of what I do. I do not read other trading blogs, but I have been around long enough to know that most things in this business are hype and marketing. There is neither of that here. This is just a straight forward commentary about my trading with a few smart ass political or otherwise relevant remarks thrown in. It is my style and it is all I know to do. With that in mind, I mentioned a couple of trades recently that are now closed so it is time to cover the results, Crude and Gold. The above chart is Crude, and there was a comment by someone in one of the other posts about they thought it looked like a buy and wondered what the update on the trade was. You can see above where I entered and exited this trade. Genesis displays the little arrows when you trade through their platform showing where the trades were made so it stops people from giving you some false story about what you did.

As you can see I entered this trade right where I indicated my orders were, I got 4 ticks of slippage on the entry. The first day we got a nice down close below the low of the day before. Once we get bars like that the market should get moving in that direction. I had moved my stop down to above the high of that day due to that for the next 2 trading days. When I reviewed this last night during the night session I noticed that yesterday had made a higher short term low than the prior one, when it took out the prior bars high. This made me uncomfortable with this trade. I also noticed that the market had then settled back down for the day, giving us a reversal bar down. These are generally more buy entry bars than sells as I have written about in here in the past. Some of the other things I use appeared to be turning back up, another dagger in the trade. When I then stepped back and looked at how strong everything across the board was, I reasoned this was just not a time to be short anything once again. I did not have a buy signal, so I decided to just go flat and went to the market and did so.

Obviously this was a good judgement call in that I wound up with a tiny profit instead of a loss. The loss had I kept the stop in the original spot would have still been less than the original stop, so it still would not have been a disaster, but this trade was just no good plain and simple. Trading is about making judgement calls like this that are not emotional, and are based on market developments. For the most part I exit on just stops or limits, but when the tide changes while I am in something and it is clear that it has done so, I at times make decisions like this. They are not all as good as this one was circa my GOLD trade which is next.

Here you can see I entered this trade on the same day as Crude, but never even got one really good close in my direction. All I did here was move the initial stop down to the 3 day high once the trade progressed for a few days. There was no judgement on exiting like that of the above example in Crude. I wish there had been, but I don't force that type of decision. In my judgement coming into today had we traded down below the low of yesterday this trade would have still been in good shape. If we went above the prior days high which had become the 3 day high now, the higher short term low would be confirmed and it would be time to get out. You can see with this one I traded the mini contract instead of the full sized one. I took smaller size by far than I normally trade with on this one because it is a new pattern I am experimenting with so I did not want to risk much to see how it worked. I entered this after 2 consecutive down closes which I have not done ever prior to this trade. I did it because there were some internal things not displayed, that showed this could be weaker than it appeared on the surface. The experiment failed I guess.

Some of my tools still tell me this is a short up here, so I am watching to see if one of my traditional core patterns shows up here. If it does I will wade back in here again. If it does not I won't. The next trade is a market we traded recently in our Robbins contest account, and also one I have traded some emails with a couple of readers on, the Swiss Franc.

We actually kind of botched this trade by exiting where we did as indicated above. However, coming into today I noticed my COT index had been moving up pretty nicely, actually flashing a buy signal. We would have been out today at about the same price as we did exit anyway, so nothing lost in the early exit. I added this to my list of potential longs for today. I did not wind up taking this long entry today for a few reasons. First and foremost, it is amongst the weakest currencies, and I never buy the weak. It is weak ( on a short term only basis ) because it is the flight to quality vehicle vs the stock market. Now that we have the stock market back in lift off mode once again, I just found it hard to believe this would rally. This is the same logic I used for not going long Bonds today which was another buy setup that at the moment is looking like it is taking off.

When we get into these pullbacks against the larger trend then they bounce back in the direction of the trend but are still below the highs, we always have a decision to make. Is it a resumption of the trend, a continuation long trade, or is it a failure pattern indicating a reversal. I wish I could tell you how to always know which of these scenarios is true. I do not know any sure fire way of knowing this. It I did I would keep it to myself probably since it would be worth millions of dollars. You just have to make your own judgements as to which you think is happening. The above logic is what I used to not take these two longs and to wait to see if the failure patterns come along to short. Time will tell if that logic is any good or not.

As to the overall market, my stance has not changed. The Russell made a new high for the year yesterday and I expect the other two indexes to do it as well by the end of the week. The bull market is back in full flight mode once again. I had a talk with a long time friend of mine the other day who is an excellent trader. He is equally perplexed by what we are seeing in this market. However, we both agreed that you have to go with it until it isn't happening any longer. It really is that simple. You may or may not think this market move makes sense or is justified, but the fact of the matter is that we have the strongest up trend in the history of the stock market at hand. Don't fight it. If and when the trend changes it will be obvious. We were on the verge here recently, but the key levels held. Key support levels won't hold when the trend changes, and it will be as obvious as it can be when it happens. Until then don't fight the FED who knows how many years they might push this thing.


Konrad Sherinian said...

Chris - interesting comments on the market...nonetheless, if it reverses down from here, it would look a lot like many other tops in history. I also note that the DXY broke its falling trend line today, which would tend to suggest downside for the market ahead.

All that said...who knows?

Chris Johnston said...

Yes you are right but I think we could have argued that for the last 2000 dow points. This is a unique time in history where rules that have applied for 100 years do not. The government is running the stock market. The long side is the side until we get a decisive break and who knows that could be from Monday or 20,000 in the DOW. It all depends on what Bernanke wants it is his call.

Konrad Sherinian said...

In any event, the dollar went boom (again); very weird...maybe we will hit 16,000 by the end of the year (CNBC talking head call).

Chris Johnston said...

Nothing would surprise me at this point. As we have seen over and over, when the fed inflates a bubble they can carry it a very long way before it pops