DON'T GET LULLED TO SLEEP

We are experiencing an extended period of low volatility and it is very easy to get frustrated. I can tell you I am having a hard time finding many good trades to go after. I am placing a lot of orders but none of them are getting filled. I tried to go after Gold recently and it just went the opposite way. I had one trade that was a small loss, and none of the other orders have filled. I have a Natural Gas trade on that is going nowhere. I have been trying to short the Euro, and those orders are not getting filled. If you look at the above chart of Crude Oil, normally a great swinger on intra day charts, you see an EKG. That to me is not tradeable. As my dad would say would he did not like something, "That's Horseshit." When I met with my accountant yesterday to start of my tax return, we were also talking about something he obviously thought was annoying. He said "That's Horseshit!" Maybe it is just me but I think that just sounds funny. Maybe it is a generational comedy type of thing, but it makes me laugh just to think it especially since on my ranch I am knee dip in it at times.

One of the basic premises I have discussed before here is that markets go down when the buying stops not when the selling starts. Selling accelerates moves once they start, but short sellers can't stop an up trend on their own. We have reached such a high level in such a short time in stocks, even grandma knows we are extremely overbought. This does not really mean much. It certainly does not mean we have to come crashing down. During very strong runs, markets can remain overbought for months at a time. An overbought condition in an down trend is bearish, but in an up trend it is not. It might very well be that the big houses are afraid to commit new money to this move without some type of pull back. It is just eerily quiet. This will not last.

It is easy to lose focus during times like this, but you cannot. Go through your daily routine whatever it might be. If you log potential trades like I do, then go back and look at each one to see if it makes the cut, keep doing it. Look at each chart. I have made the mistake of thinking "I know what that chart looks like I don't need to go look at it again" and wound up missing good trades. Do not get lulled into being lazy. I show a tendency for Bonds to move up here, so I am trying to find ways into day trades on the long side of that market. I am keeping my focus on that to stay in the game. I do have orders placed to short the Euro today, but those orders do not appear to be anywhere near where price is going to trade today.

One other thing I suggest is do research studying either the way you trade, or other potential new ideas. Keep your head in the game. We will likely have some good sized moves coming soon and you don't want to miss them. I do not anticipate a big move down in stocks at this point, but I did lay out a few big picture concerns that I have that are at some point going to matter. It is likely at some point this year we are going to have a pretty good sized decline. The FED is doing their part being good political citizens keeping rates low during an election year, which should help keep stocks relatively strong.

I have traded some emails with readers about some trading systems some of you are using/developing. Some of them seem to be doing quite well and that is fantastic. New readers may not know my history with trading systems, but in brief I used to be a huge proponent of them. USED TO BE. The one thing I finally came to grips with was that they all blow up eventually. This is too long of a discussion as to why this happens, it will probably be something I write about if I ever publish a book. The best way to use them is to have them give you a bias, then assuming the method is not overly curve fit to past data, you can reliably take trades in the direction it indicates. I would if I were using one, try to make it as simple as possible. The more variables it has the less likely it is to work over time.

Here is a good example of what is so typical of trading systems. This is just one old pattern that worked for years in Bonds. You can see that it had no losses then all of the sudden it not only had one, but it was a whopper. This does not necessarily mean that this is no good anymore, but it is an early warning sign that things have changed. If you start seeing more losses and those losses are larger than normal, it is time to be very careful with your system. I have saved myself countless dollars by seeing this early and pulling the plug on things over the years.

This is a very basic example and has a low number of trades, but you should be able to get the point. Something this good should not take a loss like that. It could take a loss and be fine, but not one of that size. It certainly appears that I missed a good long opportunity in GOLD and SILVER by trying to short those markets. Here is a point that ties into what I was just talking about. My methods did not have buy signals, they only had sells. Had they only had buys and not sells, I would have gone long. My method did not catch this trade unfortunately. Nothing is going to be correct all the time that I know of, so I accept that albeit it grudgingly, and move on.

That is all for today.