I will get to why I have today's title what it is at the end. First, I want to cover a market setup I think is getting close, Crude Oil. Like many markets, the across the board push is lifting this market along with many others. I commented over the weekend that thus far we have not seen commercial selling yet on these rallies, which would certainly make them better. In fact we have seen buying. This could well mean the setups are no good. However, the COT report is not the end all, and at times as most of us know who reference it, the positions can be dead opposite of a move for months at a time. This has to do with their hedging function and how they establish their positions and what they are trying to accomplish.
The COT report is studied pretty widely now I think, and he is where I think some of the "experts" go wrong with it. Many of these experts I don't think trade much if at all. If they do trade, they are making their money from analysis and not trading profits. This is why I think the academia of the analysis leads people astray. Without mentioning them by name, one of these services has just been dead wrong about virtually every market for the last 2 years, then they came out with the "look at me" I called this decline, when we imploded on July. The problem is any of the subs would not have had any money left to take advantage of the call, or if they did would likely not have acted on it due to lack of confidence after a string of 2 years of incorrect predictions.
Larry Williams, as most readers know, is my mentor. The reason I feel he is the best source to learn the COT stuff from is that he actually makes millions of dollars trading using it. That is a significant difference. The others seem to use their analysis of it to generate their income, Larry uses his analysis of it to make trades that generate his income. We all can have the same tools, but it is the ability to use them to make money that matters. Anyone remember Ron Paul saying Buffett knew nothing about derivatives? Buffett went on to make $5 B on them. I guess Ron Paul should write a newsletter but not trade?
This is also why "insiders" like Realtors got the real estate crash wrong. They did not make their money by being right about price direction, they made it on commissions in transactions. They essentially had no skin in the game. I made over $1 Million dollars profit on the last house I bought and sold at the end of 2005, yet I was told by Realtors that I was nuts calling for a market crash. Again, the Ron Paul/Buffett scenario. I was made fun of at a party in my old hood after my escrow closed by the real estate people. "What does a commodities trader know about Real Estate?" "We have spent 20 years in this business and we can tell you that you don't know what you are talking about." My response was I know more about price cycles than you will ever dream about knowing, then left the room. One of them has since sought me out asking for future price predictions for real estate!
Those are two exact quotes that I won't ever forget.
You get the point, analysis is one thing, but making money is another. They often do not coincide. This is a lesson I have learned the hard way over the years. Being right is of no value, it is how much money you make in your trades that is the measure of success or failure. There are great traders that only win about 30% of the time, yet make big money. How, they catch large moves when they get wins, and lose small when they are wrong. Often they take several stabs at the same trade, eventually catching it.
I have to admit, I need to be somewhere in between to satisfy my own personal demons. If I am in the 55% to 65% range I am happy, and that is where I generally fall in terms of accuracy. However, my average win is many multiples of my average loss, so it works out well. With that in mind, we get to the Crude Oil setup at hand. We will never "know" if a trade is going to work or not. I just strive to play where I think there are as many things pointing in my direction as I can get, and understand that I may have to take a couple of swings at times to catch the trade. Obviously I prefer to get it right the first time, but who doesn't?
This market is showing the POIV diverging up here a sign of underlying weakness. The Synthetic COT indicator is also there where it needs to be. This market is also weaker than both Heating Oil and Unleaded Gas. This is pretty much a green light special as far as setups go. The next chart is the weekly, which shows the higher time frame version of the setup.
Notice how we had the huge divergence in POIV on this weekly chart, which gave us an advance warning a bounce was coming. We are right at a key seasonal point as well. This is a good setup to watch.
Last, the payoff pitch and the source of the title of today's post. I exited the Sugar trade I had been riding for a little while for a nice gain of $20,000. You will notice that the POIV (purple line) was starting to lag quite a bit here, that bothered me.
I had been trying for the target that is displayed on the screen having orders each day that bracketed the price action, neither one of them getting filled. When I felt that we were at a stalling point in equities at least for a short period of time, and the POIV was here, I felt it was best to take profits. It is a screwy world right now with stocks driving literally every single market. I just reasoned that if they pull back, it is likely everything else will, and I am really looking bigger picture to short rallies in commodities. With all this in mind I exited intraday where the green arrow shows and took 20k out of this one.
I don't like to brag about numbers, and this is not a huge gain. However, on some level I think it gives some credibility to what I am doing in that I am not a one lot trader. There are decent sized profits that come in on the winning trades.
Net net, I am still looking for an equity retracement here which I think will in turn drive everything else down with it.