Thursday, November 03, 2011


As much as other aspects of life can have a negative effect on trading, one aspect of my personality that I have from other things, helps me a great deal at certain times. Here I am on the heels of several very good months of trading results, and chomping at the bit to really roll. However, I find myself at a juncture where the setups I look for are not there anywhere as today starts. I don't know if the discipline I have is from wrestling or I had it first and it is why I was so successful in that sport. Either way, I do have it, and it tells me to be patient and wait here until my setups come along. I may miss a good move here, but there is nothing more aggravating to me than to review an old trade that lost money and say out loud "what is the world was I doing there?" Anyone else ever experience that? I bet so.

I have mentioned that some of my short term things I use to actually enter trades, are at times not shown here to protect myself. In this instance, those things are not flashing strongly in either direction. I still consider this to be a weekly down trend now, and this move up to be a retracement. From a broader perspective, the cycles and seasonals overall tell us to look for a continued rally. As a result, things are somewhat in conflict for me. I do not like pushing things when this type of conflict is in place. The title of the post is an annoying sports cliche that one dumb ass, excuse me, businessman, throws out over and over. However, the deeper meaning of that is be patient and that is very good advice. I always wondered in the NBA exactly how long you can wait for the game to come to you, isn't there a 24 second clock? I guess you can wait for 23 seconds? I love the NBA don't get me wrong, but some of the interviews I could do without. In trading we have to wait a bit longer than that.

I have mapped out what I think my short term indicators are telling me is the likely path we are going to follow. This can change from day to day, and it is based on me having a general feel for how these work in relation to price action. This is by no means at all etched in stone. It will change as each bar rolls out. If this path is correct it would mean the next short term trade will be a sell signal, that would take us into the end of the month, which would then setup a buy signal. Maybe we just blast out of here and the short term things I am watching that appear to be setting up are invalidated? I have no idea I just call things as I see them roll out. I do not have a short term signal in either direction here so I am flat.

So it goes with stocks, so it goes with most other things. It appears to me that many other markets are setup for the next trade being a sell signal as well. Many of the charts look the same as that of the ES above. The next on is the Canadian Dollar, one I really want to short if we bounce a bit more.

What I really like most about this one is it's relative weakness compared to the ES chart at the top. It has been weaker, and there is a strong seasonal bias down here coming due. This is one I really want to come to me. The energy complex is also the same story as well as many others. There is no doubt that on a intra day basis, the European situation is moving the markets. We cannot do anything about this. However, I maintain that all news events are already in indicators when you study past patterns. In other words if you have patterns that you use that you have studied back for years, there were also news events going on at other points in time. If you patterns worked well then, trust them now. Do not make the mistake of over riding a trade because you think some news event will make your tools not work. If you think that, your tools are no good and you need to get rid of them and find something else. Some trades just lose. You don't want to get into the Kramer style of decision making.

What I mean by that is that haphazard arbitrary emotional judgement game. Yes you have to make judgements, but they should be based on your tools and how they work, not some arbitrary opinion about a company's CEO, or whether or not China jewelry demand will drive up gold prices.


I think this situation bears covering. This is one of the dangers we just in reality cannot always do much about. If an individual or group of them are going to perpetuate this type of what appears at the moment to be a massive fraud, we are not going to have any advance knowledge. I do track the credit ratings and status of my brokerage firms to try and stay in front of this type of thing. However, PFG which is one of those firms, just issued a statement in regards to this event assuring clients that they do not engage in any of the types of things MF did, and that they are if full compliance, well funded, etc.. I have every reason to believe this is true. However, one of the golden boys at MF made a similar statement about 3 weeks ago. We all know the BS that exists in the corporate world, so a statement of reassurance is not that comforting. In my little world the minute someone says something like that I tend to move my money immediately. There have been numerous instances in my life, one in particular that come to mind. 

Many many years ago I was working for a textile company that was privately owned. The owners son had left a voice mail one afternoon denying the rumors that had been circulating the prior few days about a sale of the company. He vehemently denied that anything was going on. The very next morning the same guy announced the sale. This was not even a half a day. The last thing anyone wants is a mass exodus when a sale is being negotiated. As a result statements like that one above are often alerts to a problem. In this case though, with the climate we are living in, a firm making a statement like that is probably the prudent thing to do. I would have made it a bit differently, emphasizing more that they do not engage in heavy trading which is what bought MF down. It was mentioned, but more as a throw in. I would have made the whole statement about that.

In any event, what I do is split my money up some in case something really bad happens. That way two unrelated firms have to POOF for me to get really screwed. If we truly have another crisis coming, that still could happen, but the odds are reduced.

Best wishes to those who are in a tight spot due to this as I know some of my readers are based on emails. The SIPC should cover some of this, but don't quote me on that I am not sure. Tomorrow we of course get our favorite report, NFP. Based on the way they work these numbers, I am expecting to see a slight improvement. Make no mistake I think the reality is things have worsened and the report will be doctored. I am just telling you what my guess is that the report will show.

I happened to catch a question before I went to press here about my Cattle trade and the entry.

I had mentioned that this market was setup based on bigger picture things, one of which is the seasonal which you can see on the chart. The most recent COT signal was a sell which was still in effect, but nothing had developed in the way of an entry until we got that first move down then the small little rally. On the day of the outside bar which is green, I had contemplated entering that day, but decided to wait based on one thing that is not shown and won't be. It was just a read on a private indicator I have, no holy grail. I reasoned that if it just crashed I could try to catch it on a bounce and still get a good entry price. This was a good decision since the outside bar day traveled the full range twice, and would have stopped me out had I done that trade. Waiting until the next day got me in on a small bounce, then it just went my way right from there. When determining where to put the limit on the bounce, I took a very small one because I knew I wanted to be in and did not want to get too cute with it. In reality I probably should have taken the first entry and not risked missing the trade, but in this case it worked out to wait like I did. This will not always be true.

I hope this answers the question.

Good Trading


colin said...

Chris, live cattle now looks like one should be looking to get long, based primarily on the strong seasonal pattern. Any thoughts on that?


Chris Johnston said...

certainly following it nicely but I would not chase that market here