Wednesday, August 17, 2011


One thing I constantly contemplate is to what degree my whole life should be dedicated solely to trading as opposed to mixing in other things. As to the question Don asked in regards to this, all I can tell you is what I do and also that I do not think I have the correct mix. I will get to this in a bit, but first a few market setups.

Sugar in the above chart as you can see is setup very well for a sell signal. We have a down seasonal and also my synthetic COT indicator is well into the sell zone. I have marked off the other times in recent history where my indicator has indicated sell. If you just look at the one that was incorrect it occurred at a time of a seasonal low spot. All the others worked and had a seasonal bias to go with them, which is what we have now. I have orders in below to short this market today which at press time do not appear to be likely to be filled, but you just never know. The setup is there, so I am there.

Here is the Wheat market, one that is setup bullishly with the COT data and also has the seasonal bias upward and also obvious accumulation going on via the POIV indicator. I have not been in this trade yet, so I am waiting for a pullback, whether or not we will get one or not I do not know. I suppose you could have justified via a trap pattern being long the day after that plunge down below a couple of weeks of lows, where the market immediately reversed the next day. The other triggers I use were not there so I did not take the trade. Trades are always obvious afterwards, but you need some type of framework to use for trading otherwise you chase your tail all day long with second guessing. If you are long you are looking good in this one.

This last chart is the NAZ 100 formerly known as the Bernanke 100. You can see we are deeply in the sell zone with my COT Synthetic. If anything this indicator has tended to be a day or two early in this market, but still more or less spot on. The trick with huge plunges like we had recently is always how and where to short the bounces. I mentioned a week ago that I expected this to be a little tricky, and that is turning out to be the case. We are having a pretty good sized bounce now that is gaining steam. It is certainly not out of the question that we have seen the low and we ramp back up, I never rule out anything. The seasonal and cycle patterns suggest we should have more down side action left, so that is where I am leaning right now. I do not see a sell signal yet, so from a short term perspective you should be long which I said at the lows if you go back and read prior posts. I did mention for nimble traders longs where the place to be the day before the low of this move down.

Since Don brought up the topic of the balance of other interests to the primary trading business, this is what I do. Trading as we all know is a very challenging business, we never know when we will have draw downs or big windfalls. What we do know is that it is not like a salaried job where you make the same amount every month. There is always the challenge of how to smooth out the cash flow. This is the main reason I have moved back into doing some day trading, it helps bring in some money almost every day which helps with the monthly bills. Since I live in San Diego, the markets close for the day by 1 pm with many closing by noon or earlier. This leaves me with half a day on my hands. Also, I don't like to sit in front of the computer all day long every day, so I do have the flexibility to mess around with some other things. As a result, I do that for the main reason that it helps cash flow. I do not want to get specifically into what those things are in this forum. Once I start writing a newsletter again which I will likely do next year, I will divulge those types of things since it is a bit more intimate than just blasting out to the world in a blog.

For now, what I would suggest to those who debate this same thing is that you do need to step away at times whether that is hours or days is an individual decision. Trading is a very isolated business so I like having contact with outsiders, I just think it is healthy. Most of these people have no clue about trading or what it is, but I do get the stock tip questions all the time. My favorite tip is "never listen to tips." One thing I do feel more and more strongly about as I get older and hopefully wiser although I am not sure about that trite phrase, is that to be really successful, you need to give what you want to do everything you got! I know of no famous success stories where the persons Mantra was hedging his or her bet. If what you want to do is trade, do it, and then fill the off market time if you have it with something that gets you away for a bit. Of course off market time should also be spent studying the craft to find ways to improve.

Trading is a tough gig and is not for everyone. Sometimes after bad streaks I wonder if it is for me. However, I am pretty sure if you don't dedicate yourself to it you probably won't do well. I do have my own gym here on my ranch, so that is always a good get away for me since I am really into fitness and working out, but sometimes even that is not enough, I need to get off the reservation for a while. The extra money "doesn't suck" as someone once said.

Don I hope that answers your question.


Anonymous said...

Thanks for the info and I will wait for the newsletter for more detail (assuming it's affordable).
Obviously I think we are all interested in the "checkoff" approach you use for analysis to find the trades you actually enter.
One tech related question about your COT Synthetic. Is it your own developedment and private or is it a tool from Larry and/or available from Genesis. Speaking of Genesis, am I correct in assuming you have the top of the line Platinum package?
Thanks again for all you do to help the rest of us who are trying to get to your level.
Don in Virginia

Chris Johnston said...

My COT Synthetic is completely my own creation so it is not available at Genesis, and it is not based on any LW ideas at all, it is completely different. At times it is great others not so great so I am still not completely sure what the best way to use it is in all honesty. Yes I do have the Platinum version of Genesis. As far as the Newsletter goes it will be cheap. The last time I did it think I charged $25 a month for it and gave it free for people who signed up for the Trading Service which ran $1000 per year. Just the letter alone was $300 a year. I have to charge at least that to make it worth doing it