Just look at all the crap that is on this chart. I can draw arrows and call upon experience with all of these indicators and when to do what with them. However, at the end of the day, simplifying things always helps me make better decisions. Being a perfectionist in trading is not a good road to go down. Trading is very imperfect, we cannot impose perfection on something that is inherently otherwise. It is hard to just let it roll sometimes, and this is something that I fight at times. When I run into a patch of bad trades, I always study them to see if I can find common ground as to why they did not work.
I will confess that every time I find something that seems to explain them, and study it against other trades, the results are always the same. It becomes too restrictive, and results in making less money over time if followed. It might just be inherent in the tools I use, but I tend to think that it is something we just have to accept. Some trades just suck. They are lousy from the get go, and make you feel like a fool. This is a numbers game, we have to accept that.
Lets look at the chart above as an example of this concept. You can see several instances of where the Commercials were heavily long during this long downtrend in Natural Gas. By and large, buying when they are long is profitable, yet in situations like this it can be the absolute worst thing to do. You can craft all kinds of fancy rules to curve fit when to buy when the Commercials are long, and get a great system put together. What will then happen is that you will trade it in real life, miss a great trade, then take a bad one, and wonder what in the world happened? You can even make rules like just taking sells when commercials go to the bearish position when the market is in a down trend. This is the best way to use the COT data. However, you will still have trades that are lousy with this setup in place. You may have a few. Do not get tempted to start adding all sorts of filters to the setup. Overall you will catch big moves using this basic setup, and along the way some trades will lose. It is a numbers game.
I got into this mode recently as a confession, and just did not trade enough. In the midst of it I missed a few nice moves I normally would have caught. I hope everyone can learn from me. You just have to let go to succeed in this business. The tighter the reins are the less likely you are to do well. This does not mean you don't use sound principles and money management. It is a given that this must always be done. Once you have that employed, and your rules tell you a trade is there, take the trade.
Speaking of that, by my rules Natural Gas is setup for a buy right here if it rallies up some. There are not additional comments. If it rallies a little here I will be a buyer. The Gold market at the end of last week was setup as a sell, so I sold it. The outcome of either of these trades is irrelevant. I know by my rules, that over a sample size of X number of occurrences, these types of setups will produce quite a bit more wins than losses. It is up to me to get out of my own way.
There are also a good number of long setups that are a day or two away depending on the price action Monday and Tuesday. I don't see anything that jumps out at me yet, telling me to look at shorting the indexes. At the same time, there is not good probability buying something this extended. There just not great immediate opportunity in the stock market other than riding longs, trailing them with stops, and enjoying the ride. I do not know whether or not markets like the metals can separate enough from stocks to actually decline, but that is a mental exercise not worth undertaking. I have setups there for sells so I will take them and whatever comes of them so be it.
I know there was a comment in one of the threads about the indexes setting up as sells. I do not see that at this moment. The VIX which is the best indicator for stocks, does not have a signal yet the way I use it. My short term indicators do not have sells either, so time to move on to other markets.
Hopefully this week we will get some more action.