DO AS I SAY NOT AS I DO
This entry will please the skeptics that say I never show a dumb ass move that costs me money. Well.... here is one front and center. I did mention Natural Gas although being in a prodigious down trend, was starting to be a place where I was looking to the long side. Here is a trade I tried that I got stopped out on this morning.
Here was my thinking and why it was incorrect. We had a thrust up off the lows, then began to go back down to test those lows. We then formed an outside bar with a higher short term low than the lowest low, quickly followed by an inside bar. When the next bar formed another outside bar whose low was higher than the prior outside bars low, I reasoned we now had a second higher low and the trend on a very short term basis had turned up. That to me was confirmed on the formation of the second outside bar. I went long above the high of the inside bar with a stop below that low. I had a very short joy ride and was stopped out for a loss this morning.
What did I do wrong on this trade? A couple of things.
First, I fell into the same trap I fall into every single time I try to trade a bit more aggressively, I got sloppy. I wanted to trade more in terms of frequency this year. I tend to get too damn picky at times, and miss moves I should not. However, what I always wind up doing is pushing marginal trades when I try to make this change. This is an ongoing battle for me.
Second, and more importantly, I incorrectly assessed the structure of this market. Yes we had made a minor higher low. However, that does not mean the trend had changed. For a trend change to occur, the last pivot point coming down, needs to be taken out. That has not happened in this market yet. One thing that is happening right now for some reason, is there is a very large frequency with outside bars in most markets. I do not know why this is happening, but my guess is that it is due to the light volume that seems to be a characteristic of every market. That makes pushing the markets to certain places much easier. It could be that large orders are by chance coming in right at times when things are quiet, and the markets just quickly move to those spots. I really don't know why this is happening, but we need to be careful with this.
This does remind me of when I first noticed all the gaps happening in Bonds a few years back. This was caused by the electronic markets and their increasing popularity. At the time my theory was that the rules I used to use trading gap openings in the pit session, were no longer going to be valid. As a result, I stopped trading my primary bond system that had done so well for years thinking it was bound to run into trouble. At the time it was doing just fine, but that would soon change. It completely crashed, and I saved myself a bundle of money by making that judgement. I don't know if this is the same type of situation or not, but it bears watching. The one thing that is constant is change.
For those readers who want to know what my proprietary tool I use is that triggers trades for me, you should know that this Natural Gas trade was textbook with it and you see how that turned out. There is no easy way to riches trading, except being in Congress. They of course can cheat day in and day out, and be immune from prosecution. They now create a law that basically says, they now have to follow the old law or it is a crime! I suppose a third one will come in a few years saying they have to follow the first two laws. These folks get endless mulligans. We all remember Hillary don't we? She is without a doubt the greatest trader who has ever lived. It is nice when brokers are even rigging trades for you. Alas it falls back on us the little people, to try and figure this out.
In this case, the bottom line was that I should have waited for a penetration of a pivot high that formed on the way down, then tried to buy a retracement. What forced me to do not wait for that is all of the V tops and bottoms we are seeing. One market after another seems to just make a low one day or a high, then just waterfall in one direction day after day. We are not getting the short term highs and lows, shoulders, that we have historically gotten.
Speaking of this, let's look at Gold a market I am dying to short but have not yet. You can see the pivot picture. We have one first move down, now we are bouncing. The trend is still clearly up on the daily chart. We have not taken out any pivots yet, so if this market were to break right from here, it would be against the trend. It would be best if we either had a false breakout of the recent high the immediately reversed, or a move down then a bounce. I plan on being a bit more aggressive on this due to how setup this market is for a big decline, but it may not be the most prudent approach.
Time for me to go see if I can beat my 5 month old pup Vinny in a spelling bee. The oddsmakers based on the above trade have established me as a significant underdog.