Wednesday, November 02, 2011


I guess I am bored so I resort to my old tactics of picking on that obnoxious pinhead, hence the title of the post. This is tongue in cheek because I do not consider myself so all knowing that I am in any position to talk down to people or teach anything. However, I have had a few hall of fame seasons, so at least I have some experience in what I talk to people about unlike you know who. The above chart is that of Unleaded Gas, a trade I decided not to do, and I will go into why. 

First of all, I had been talking about the energy sector as a spot where I thought a possible decline was coming. Although Crude Oil has been by far the weakest of these on a weekly basis, on a daily basis Unleaded Gas has been the weakest. I did take one short trade in this market and I went through how I got into and out of that. It was a bad trade that I was able to get out of making a little bit of money. As I was looking at this setup, the logic I used to save myself on the first try was on the top of my mind, POIV. When we made the first probe down, POIV did not confirm this and in fact it was making new short term highs while price was declining. This is bullish not bearish. As this setup approached, I noticed this condition was still in place.

I looked and their was a good trend line that could be drawn in, and the stop was a tad over 3k a contract, all within what I like to see. The seasonal was also going strongly down, so this should have been a good trade to take. One thing that has been going on here which I have mentioned, is the spread trading between this market and Crude Oil. It is very pronounced and is making for very erratic correlations or lack thereof, in this sector. This is another red flag. So, in summary, there was what I consider to be a good market setup for a decline here, and we did get one, albeit intraday. However, I passed on the trade due to the divergence that was so prominent in the POIV indicator. 

Please understand that POIV is no panacea. There are times when it gives an indication that is incorrect just like any other indicator does. The key to all of this is knowing when and how to put things together, that is the art of this business. Repetitions is how you get there, plain and simple. At press time this market is trading above where the short entry would have been. It is yet to be determined how wise passing on this trade was. However, I definitely avoided some aggravation as this has taken back a pretty big profit that would have been there at one point had the trade been done. I really want things to just go once I get in them, not chop around and give me gray hairs. You just have to work work work with your tools, then have some live action, to best learn how to do this on the fly. I would love to tell you it can all be done mechanically, I used to trade that way. However, mechanical systems just do not work anymore in my opinion. As a result it takes us back to really on good ole us to make the calls.

Another trade I covered recently where I went through my logic as to why I got out where I did and threw myself upon the court to determine if I was a pinhead or a genius, was Live Cattle.

I am not sure why in the world I do posts like the one I did the other day in a free forum to potentially make myself look so bad if I get things wrong. Fortunately for me I get them right like this enough that the victories far outweigh the blunders. Make no mistake though, the blunders seem to weigh more heavily on me than the wins. I think that is because I probably lose readers when I get one thing wrong in spite of what else I get right. Most people surf to find the holy grail, not a grass roots nuts and bolts grind it out guy like me. They don't want someone telling them it is hard work, and sometimes you lose, so they move on to the next spot.

When I went through why I exited the Cattle trade, I told everyone that it was over and I was moving on. That was true. I just happened to notice as I was scrolling all the charts last night for possible trades today, that Cattle had a limit up move yesterday. Whether it was a limit move up or whether it had continued down, the mind set needs to be the same. This was a trade I made a good profit on, and it was over. Whether or not it would have gone on to have made more or less had I stayed with it is irrelevant. That is the point I am trying to get across here. Cut em loose inside once you cut em loose outside.

I do have to confess however, that it does make me feel a little better seeing what a great judgement call I made here and it reinforces how I approach trading. Confidence is such an important element of trading, and you can gain it by sequences like what I just described in these two markets. If you are a systems trader and trade mechanically these types of thoughts should not be part of your life, but it is funny how they turn out to be. The one fallacy with mechanical systems trading is this. You still have to   click the mouse, there is still a human element. If for whatever reason you are not confident in your system you will have a hard time executing the trades. I know I have been there. When I had my trading service and had people, many of them friends, executing all the trades I called out every day, there was a lot of pressure. 

I have always felt worse about others losing money on trades than about myself. The best rationalization was that I was in all the trades also, and with more contracts, so I lost more than any subscriber when a trade did not work. There were times when after either a long winning streak or a streak of a couple of losses where I found myself hesitating on the trades. This is the part of this business that is so difficult. However, if it were easy everyone would do it and make millions of dollars. There are haves and have nots in this just like anything else. You don't need a psychologist or a book to read to deal with this. You just have to suck it up, just like you do with any other adversity you face in life. I was a pretty accomplished wrestler in high school and the one thing my coach always gave me credit for was that I wrestled from behind better than anyone else he had ever seen. In other words when I was down I was never out. Keep in mind my senior year I rarely lost, only 3 times the whole year, and all 3 of those very early in the year, but I was behind at times in many of the matches and came back to win. 

Hang in there and keep fighting. This above logic I covered in these two trades is part of fighting. You have to learn to be patient, make decisions, observe what is going on, and live with what happens. There is always another trade, so make your best judgements like I attempted to do with the two trades above, then move on to fight another day.

I don't see much to do today so I am messing around with the tick charts doing some day trading. We are getting a good sized pullback in the indexes. I am not sure at this point if this is a buy or sell on a rally. Once I decide you will be the first to know, of course after me!

Good Trading


ya said...

I noticed short cattle trade because of your blog, it agreed with me and i went short (later than you). I was still short yesterday morning. My big clue to get out was the fact that most markets were heavily red, with cattle barely budging. Market ready for seloff not selling while everything else falling. I got out with a small profit before moveup.

Chris Johnston said...

good logic nice decision

ya said...


I was looking again at the unleaded gas chart & still don't understand what made you bearish ot this chart besides seasonal trend ?

Chris Johnston said...

I put my reasons in there, lower highs, lower lows, seasonal down, it does not have to be more complicated than that for me